B e n e f i t s i n k i n d

Transcription

1 09/07/ B e n e f i t s i n k i n d Taxation of benefits in kind in Luxembourg is based on the general principle that the benefits, both in cash and in kind, made available to the employee are considered as income and must therefore be subject to tax. The valuation of non-pecuniary benefits is determined based on the market value of these benefits; in other words, it represents the cost that the employee would have to bear to obtain the benefit himself. This value being sometimes difficult to assess in practice, the tax authorities have set lump-sum valuation rules by circular LIR n 104/1 of 20 November I. Employer provided housing If the employer makes a dwelling (apartment, house) available to its employee, two scenarios are to be considered. A. The rental agreement is concluded in the employer's name or the employer owns the dwelling The value of this benefit in kind is assessed taking into account the characteristics of the dwelling or by analogy to the rent paid on the market for a similar dwelling. However, the tax authorities accept a lump-sum valuation of the benefit based on the unitary value of the accommodation made available to the employee. The unitary value is a value set for the purpose of calculating property tax. It corresponds to the value of property expressed in prices as at 1 st January The monthly taxable benefit is fixed on a lump-sum basis at: The dwelling is rented by the employer 25% of the unitary value, with a minimum of 75% of the rent (excluding incidental costs) paid by the employer The employer owns the dwelling 8,92 /m2 of living space for a studio or apartment 7,44 /m2 for other dwellings With the significant increase of the level of rents, the valuation based on the unitary value is in most cases no more relevant in practice. 1

2 Example Unitary value of the property : 5,000 EUR Monthly rent : 2,000 EUR Lump-sum valuation of the benefit in kind : Unitary value x 25 % : 1,250 EUR Rent x 75 % : 1,500 EUR Monthly taxable amount : 1,500 EUR If the accommodation is furnished, the taxable amount is increased by 10%. Incidental costs borne by the employer (eg. heating, electricity, water, insurance, etc.) are to be added to the taxable benefit for their actual amount. The employee's contribution to the renting costs reduces the value of the taxable benefit. This participation is deductible without limit. Example Unitary value of the property : 5,000 EUR Monthly rent : 2,000 EUR Employee's contribution : 500 EUR Lump-sum valuation of the benefit in kind : Unitary value x 25 % : 1,250 EUR Rent x 75 % : 1,500 EUR Monthly taxable benefit : 1,500 EUR EUR = 1,000 EUR B. The rental agreement is concluded in the employee s name This is the case where the rental contract is concluded by the employee, who is the debtor of the rent. When the employer bears either all or part of the rents (by reimbursing the employee or by paying the landlord directly), the reimbursement is treated as a cash benefit for which there is no valuation question. This pecuniary benefit is subject to tax in full for its nominal value. II. Company car made available to the employee This is the case where the employer makes a car available to the employee who can use it for business as well as private travels. The car may be owned, leased or rented by the employer. There is a presumption of private use of the car by the employee, unless the latter can demonstrate that he uses his private car to commute between his home and workplace and that the company car is parked in the company premises outside normal working hours. Indeed, the journey between home and place of work is considered a private trip. 2

3 The tax authorities provide two methods to assess this benefit in kind. A. Valuation according to the cost per km The assessment is based on the actual private mileage travelled by the employee. Therefore, the employee must keep a mileage log in which he records the kilometers traveled for private purposes, including the journey home - workplace. It is up to the employer to establish a cost per kilometer for the car made available to the employee. The taxable benefit equals to the number of kilometers driven for private purposes multiplied by the cost per kilometer. The computation has to be done monthly and a schedule attached to the employee's payslip. This is a little-used method because it is administratively binding, but it can be advantageous when the proportion of private use of the vehicle is very low. B. Lump-sum valuation 1. Principle The monthly benefit in kind linked to the private use of the car is set at 1.5 % of the purchase price of the brand new car (options and VAT included) and this irrespective of whether the vehicle is leased or rented or purchased by the employer. Example Global purchase price : 25,000 EUR Monthly taxable amount : 1.5 % of 25,000 EUR = 375 EUR 2. Employee s contribution When the vehicule is the property of the employer or when it is leased or rented out, the employee s contribution to the costs or to the purchase price may have an impact. Contribution to the purchase price Contribution to the costs of leasing or rent a contribution to the purchase price may be deducted from the value of the benefit through depreciation a fixed lump-sum contribution to the costs of leasing or rent reduces the taxable value of the benefit a contribution to the variable costs such as fuel, maintenance, repairs may not be deducted from the value of the taxable benefit Cap: the deduction of the employee's contribution is limited to 20% of the actual cost borne by the employer 3

4 Example Contribution to the purchase price Purchase date of the car : 1 st August 2014 Global purchase price : 30,000 EUR Employee s contribution to the purchase price : 2,250 EUR Deduction cap : (30,000 EUR 2,250 EUR) x 20 % = 5,500 EUR The employee s contribution is thus entirely deductible Monthly lump-sum value of the benefit : 1.5 % of 30,000 EUR = 450 EUR The depreciation of the employee s participation is spread over : 2,250 EUR : 450 EUR = 5 months Monthly taxable benefit : - from 1 st August 2014 til 31 st December 2014 : 0 EUR / month - as from 1 st January 2015 : 450 EUR / month Contribution to the costs of leasing Purchase date of the car : 1 st August 2014 Global purchase price : 30,000 EUR Monthly leasing : 600 EUR Monthly lump-sum contribution of the employee to the cost of leasing : 100 EUR Deduction cap : (600 EUR EUR) x 20 % = 100 EUR The employee s contribution is thus entirely deductible Monthly lump-sum value of the benefit : 1.5 % of 30,000 EUR = 450 EUR Monthly taxable benefit : 450 EUR EUR = 350 EUR C. Benefit in kind arising from company car repurchase It is common practice in case of financial leasing that the employer enjoys the opportunity to buy the vehicule at a residual value that is below the market value, and that this repurchase option is transferred for free to the employee and directly exercised by him. Following a change of position of the tax authorities that goes back to the beggining of 2011 and the recent decisions of the Administrative Court in the matter, the tax authorities consider that the exercise of this option can constitute a taxable benefit in kind whose value corresponds to the difference between the market value of the vehicule at the time of repurchase and the repurchase price paid by the employee. The market value can be set on a lump-sum basis according to the table published in the circular (simplified method recommended by the tax authorities), or based on an expertise certified by a professional in the automotive sector. This taxable benefit is capped : the addition of the benefit in kind related to the use of the car (as a reminder, 1.5 % per month of the price of the brand new car) and of the benefit in kind arising from the repurchase of the car cannot exceed the car s purchase price less personal participations of the employee. 4

5 Example Length of leasing contract : 48 months Purchase price : 30,000 EUR Employee s contribution to the purchase price : 3,150 EUR Repurchase option at end of leasing contract : 10% of purchase price (3,000 EUR) Market value at end of leasing contract : 35% of purchase price (10,500 EUR) Benefit in kind related to the use of the car 1.5% x 30,000 EUR = 450 EUR Depreciation of the employee s contribution to the purchase price : 3,150 EUR : 450 = 7 months Value of the benefit in kind related to the use of the car : ([48 months 7 months] x 450 EUR) : 18,450 EUR Benefit in kind related to the repurchase of the car Cap applicable to the benefit in kind related to the repurchase of the car Conclusion Market value : 10,500 EUR Repurchase price : 3,000 EUR Theoretical benefit in kind (10,500 EUR 3,000 EUR) : 7,500 EUR Purchase price : 30,000 EUR Employee s contribution to the purchase price : 3,150 EUR Repurchase price : 3,000 EUR Benefit in kind related to the use of the car : 18,450 EUR Cap (30,000 EUR 3,150 EUR 3,000 EUR 18,450 EUR) : 5,400 EUR The benefit in kind related to the repurchase of the car (7,500 EUR) shall be limited to 5,400 EUR III. Specific aspects A. Benefits in kind granted to employees in return for a reduction of their cash compensation When the employer grants a benefit in kind to an employee in return for a reduction of his cash remuneration, the lump-sum valuation methods are not applicable. In this case, the actual value of the benefit in kind granted shall be taxed. When the employer bears incidental costs in relation to the benefit granted, they are taxable based on their actual value. 5

6 B. Benefits in kind granted to shareholders of joint stock companies 1. Employed shareholder The benefits in kind are to be considered as employment income only if non-shareholder employees have similar benefits. By contrast, if no non-shareholder employee enjoys benefits similar to those granted to shareholders, such benefits are not to be considered as employment income but as distribution of profits and taxed as investment income. 2. Shareholder in a commanding position Lump-sum valuation methods are never applicable to shareholders who are in a commanding position in the joint stock companies of which they ensure the daily management. CONTACTS Angela GEBERT Director angela.gebert@bdo.lu Joëlle LYAUDET Partner joelle.lyaudet@bdo.lu This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining specific professional advice. Please contact the appropriate BDO Member Firm to discuss these matters in the context of your particular circumstances. Neither the BDO network, nor the BDO Member Firms or their partners, employees or agents accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO is an international network of public accounting firms, the BDO Member Firms, which perform professional services under the name of BDO. Each BDO Member Firm is a member of BDO International Limited, a UK company limited by guarantee that is the governing entity of the international BDO network. Service provision within the BDO network is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels. Each of BDO International Limited, Brussels Worldwide Services BVBA and the member firms of the BDO network is a separate legal entity and has no liability for another such entity s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO network. BDO is the brand name for the BDO network and for each of the BDO Member Firms BDO Tax and Accounting 6