Changes to the taxation of company cars
The Belgian tax authorities have recently made a number of changes to the income tax and VAT treatment of company cars. The changes affect how the taxable benefit of a company car is determined in Belgium, and the VAT treatment of company cars provided under a salary sacrifice or contribution arrangement.
Personal income tax – new guidelines
Company cars are often offered to a large number of employees in Belgium on account of the relatively favorable tax treatment for the private use of the car. The mechanism to determine the value of the benefit in kind was substantially amended last year (see our alerts of December 2011 and January 2012). On 3 October 2012, the Belgian tax authorities updated their “FAQ” guide on company cars. This is not a piece of legislation, but rather a series of clarifications provided by the tax authorities on the existing legislation.
The most notable points are:
- The starting point for determining the value of the benefit in kind, is not the price billed to the buyer, but rather the official list price without consideration for any discount, whether this is a fleet discount or other concession. However, if a special reduction is available not only to fleet owners but also to the general public, such a discount can be incorporated into the value of the car for BIK purposes.
- If a car is provided to an employee who works in multiple jurisdictions, according to the Belgian authorities the benefit can be fully taxed in Belgium if the car is only used in Belgium. In our view, this is questionable, as an employee is not provided with a company car on the basis of where the car is used, but by reference to their employment as a whole.
- The benefit in kind imputed for the private use of a car includes the petrol cost, irrespective of whether a fuel card is made available to the employee or not. If the employee gets a fuel card from his employer, there is no need to add anything to the imputed benefit. If the employee is provided a fuel card but needs to contribute a fixed amount for fuel costs, the latter is deductible from the imputed benefit. If fuel is paid for directly by the employee, the expense incurred by the employee to fill up his gas tank is not deductible from the imputed benefit according to the updated FAQs published by the administration. As a result, it is more tax efficient to provide a fuel card at no cost to the employee, than having the employee contribute out of their own pocket.
VAT – new rules for company cars to foreign resident employees
A legislative change that did not attract a lot of media coverage, was the new rules regarding the long term hire of vehicles for VAT purposes.
Under the new rules, which apply as of 1 January 2013, a long term lease of a vehicle to a private person, will trigger a VAT charge in the country of residence of that individual, even if the leasing company is not based in that country.
Although the scope of the changes seems to target only businesses in the leasing industry, other industries may be affected as well.
In the event that a company provides a car to the employees while charging a part of the cost to the employee, for example under a “salary sacrifice” or “personal contribution” scheme, such an arrangement will qualify as the lease of a vehicle for VAT purposes.
If under such an arrangement an employee resides in an EU country other than where their employer is based, the employer will have an obligation to register for VAT purposes in the country of residence of the employee. Company cars provided to cross border workers will therefore become even more burdensome than in the past.
For more information, please refer to our Indirect tax Alert of 25 September 2012.
Employers should be aware of the impact that the new guidelines for the calculation of the benefit in kind for private use of a car may have on their fleet. Specifically, should the car policy not address the issue of a fuel card, then employers may wish to examine this as a means of reducing the cost of this benefit.
In addition, it is advisable that employers determine whether foreign resident employees eligible for a company car might trigger any foreign VAT obligations.