A benefit in kind is non-cash remuneration made available by an employer. A company car that can be driven privately and housing provided free of charge or below market value are common examples. Their taxable value must be included in payroll even though no equivalent cash amount is paid.
Article 104 of the Income Tax Law starts from market value. Specific rules then provide practical valuation methods for certain benefits. The tax authority’s overview links the general rule with the company-car regulations and valuation guidance.
The taxable value in payroll
The benefit arises when the employee can use the asset privately. For a car, private use includes the journey between home and the normal workplace. For housing, the benefit begins when the accommodation is available on favourable terms.
The taxable amount is added to cash remuneration for the relevant payroll period. A contribution paid by the employee can reduce the benefit when the applicable valuation rule allows it. The calculation should therefore follow the employment terms, invoices and actual availability during the month.
The company-car rate starts with the dates
Contract and registration dates determine which set of company-car rates applies. Combustion and hybrid cars first registered from 1 January 2025 use a monthly rate of 2%. A contract signed by 31 December 2024 with registration by 31 December 2025 can preserve the earlier scale based on carbon emissions. Pure-electric and hydrogen fuel-cell cars follow a separate transition.
The Grand-Ducal Regulation of 20 December 2024, in force from 1 January 2025, extended the favourable transitional rates for zero-emission cars. A qualifying pure-electric or hydrogen fuel-cell car registered between 1 January 2023 and 31 December 2026 can use the lower transition rates. The same treatment can extend to registration by 31 December 2027 when the relevant contract was signed by 31 December 2026.
| Vehicle within the date conditions above | Monthly flat rate |
|---|---|
| Qualifying efficient pure-electric car or hydrogen car | 0.5% |
| Other qualifying pure-electric car | 0.6% |
| Combustion or hybrid car outside the protected earlier scale | 2% |
The lower electric category covers pure-electric cars consuming no more than 180 Wh/km, or no more than 200 Wh/km with maximum net propulsion power of 150 kW or less. The certificate of conformity issued by the manufacturer and the registration records provide the relevant technical data. The 0.5% rate should not be selected from the marketing name of the vehicle alone.
The transition after 2026
Outside the extended transition, a pure-electric car uses the ordinary rates of 1% for the lower category and 1.2% for the other electric category. Hydrogen cars also fall in the 1% category, while other powertrains remain at 2%. These categories and dates appear in Article 3bis of the consolidated regulation.
This creates two possible results for cars registered in 2027. A vehicle linked to a qualifying contract signed by the end of 2026 can remain at 0.5% or 0.6%. A vehicle outside that transition follows 1% or 1.2%. The signed contract and registration certificate therefore remain central evidence.
The flat-rate and logbook methods
Under the flat-rate method, the monthly benefit is the acquisition price when new, including options and VAT and after any commercial discount, multiplied by the applicable rate. That reference value also applies when the employer leases the vehicle or acquires it second-hand. A later fall in the car’s market value does not reduce this base.
The alternative is an actual-use calculation. A complete logbook records private travel, including home-to-work journeys. The private kilometres are valued at the car’s cost per kilometre, based on its documented ownership or leasing costs and running expenses. Article 3 of the regulation requires a monthly calculation. The logbook must be attached to the wage account, the payroll record the employer keeps for each employee.
The two methods should not be mixed selectively from month to month. The payroll file should show which method was used and how the amount was determined.
Employer-provided housing
Housing valuation depends first on whether the employer rents or owns the property. If the employer rents it, the rent normally represents the value. A lower comparable market rent can be used when the employer’s rent objectively exceeds the amount a third party would pay for a similar home.
In that situation, if no comparable home can be found, the monthly benefit may be valued at 25% of the official unit value. The unit value is a tax value that the tax authority assigns to a property and that serves as the basis for municipal property tax. The monthly benefit cannot, however, fall below 75% of the rent excluding charges. The absence of a comparable property alone does not allow the actual rent to be reduced.
For employer-owned housing, comparable market rent comes first. Where no comparison is available, the same 25% unit-value formula may be used. The monthly minimum is then EUR 8 per square metre of habitable floor area for a studio or apartment, and EUR 7 for other housing. Cellars, attics and garages are excluded from that area.
Furniture increases the calculated housing benefit by 10%. Electricity, water, heating and similar charges paid by the employer are added at their actual amount. Rent that the employee pays to the employer reduces the benefit.
Cash reimbursement is different from housing provision
The housing method applies when the employer provides the home. If the lease is in the employee’s name and the employer reimburses or directly pays the rent, the employer’s payment is normally taxable remuneration at the amount paid. It is not automatically valued under the unit-value formula.
This distinction should not be confused with the separate statutory rent allowance (prime locative) for eligible young employees. Its tax exemption has its own age, salary and amount conditions and does not change the valuation of housing provided by the employer.
Salary reduction changes the valuation
The flat-rate methods are unavailable when a benefit replaces part of an agreed cash salary. The tax authority’s valuation circular requires the salary reduction to be compared with the benefit’s actual value. Where the two amounts are equal, exchanging cash for the benefit leaves gross and taxable remuneration unchanged. Any related expenses borne by the employer are added at their actual value.
An amendment to the employment contract should describe the cash reduction and the benefit separately. Payroll treatment then follows the real arrangement rather than applying a favourable car or housing formula without checking the salary exchange.
Company benefits and payroll
Discuss how a company car or housing benefit is reflected in employee payslips.
Frequently Asked Questions
What company-car rates apply in 2026?
Qualifying pure-electric cars use a monthly rate of 0.5% or 0.6%, and hydrogen fuel-cell cars use 0.5%, under the extended transitional rules. Combustion and hybrid cars first registered from 2025 use 2%, unless an earlier contract preserves the previous scale. Contract and registration dates must be checked before selecting a rate.
What changes for electric cars after 2026?
The ordinary post-transition rates are 1% for the more efficient pure-electric category or hydrogen vehicles and 1.2% for other pure-electric vehicles. A vehicle contracted by 31 December 2026 and registered by 31 December 2027 can remain within the extended 0.5% or 0.6% transition.
How is employer-provided housing valued?
A rented home normally starts from the rent or comparable market value. An employer-owned home starts from comparable rent and may use the official unit-value method where no comparison is available. Employee contributions reduce the taxable benefit, while employer-paid charges are added.
