Slump in Luxembourg company car leases after tax change

The leasing of company cars in Luxembourg has slumped following the introduction of a tax change penalising drivers of non-electric vehicles, latest figures show.

The registrations of leased vehicles in the first half of the year dropped by 21.8% compared to the same period in 2024, representing a reduction of almost 2,000 vehicles, according to data published on Wednesday by the House of Automobile (HOA), a group of three organisations within the automotive industry in Luxembourg.

The group attributed the drop to the tax change which took effect from the start of the year, which saw more favourable rates for fully electric company cars than those with combustion engines.

“The significant increase in the tax rate for benefits in kind has had the paradoxical effect of dissuading many employees from choosing a company car,” the HOA said in a press release on Wednesday.

“Instead of opting for an electric model, as the authorities hoped, some users prefer to forgo a company car.”

Added to this is continued uncertainty regarding VAT, as authorities have still not clarified the tax base applicable to company cars.

Although those who decide not to opt for a company car also forgo the tax benefits, the HOA said that ultimately some people make “emotional decisions” about their car, rather than basing the choice solely on financial gains.

However, the car industry was buoyed by a rise in registrations generally among private individuals, with 5.7% growth in the first half of the year compared to the same period in 2024. Compared to 2023, new registrations jumped 21.5%.

The trend “reflects increased household confidence”, the HOA said, but added it is also a consequence of the tax change for company cars.

While at the beginning of the year, electric vehicle registrations were still on the rise compared to the first quarter of 2024, registrations fell by 7.2% during the second quarter when set against the same period a year earlier.

Taking all groups into account, in the first half of the year overall registrations of new passenger cars were stagnant compared to 2024, but were down 3.4% compared to the same period in 2023.

(This article was produced from a combination of reports originally published by Virgule and the Luxemburger Wort. Machine translated, with editing, adaptation and additional reporting by John Monaghan.)