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Belgium – EHS Candidate for Reform

Company car tax benefits 

The company car tax benefits enable Belgian companies to provide their employees with a company car and associated fuel card as a non-wage compensation. The labour income tax paid by both the employee and the employer are highest in Belgium among all OECD countries, at 51.5%. The subsidy allows companies to save on labour taxes because only a fraction of the car's retail price is counted as benefit-in-kind, which varies between 4% for zero-emission cars and 18% for highly emitting vehicles. So, the subsidy is the difference between the actual cost for the company and the amount that is counted as an in-kind benefit in the employee's income tax. Similar subsidies exist in Austria, Germany, the Netherlands, Poland and many other EU countries.

Traffic jam
© Alexander Popov / Unsplash

Both employees and employers benefit from the subsidy. Employees receive the car and sometimes a fuel card that can be used for private purposes. At the same time, employers can increase the salary but only pay taxes on a quarter of the value of the actual benefit-in-kind. This favourable tax treatment contributed to EUR 3.75 billion of revenue forgone in 2016, which accounted for 0.9% of Belgium's GDP. The subsidy has proven to increase fiscal inequality as 51% of company cars are registered by the 10% of highest-earning taxpayers in Belgium and only 6% of company cars are registered by 50% of the lowest-earning taxpayers.

The subsidy also causes environmental impacts. It leads to a higher private car mileage and an increased number of cars, which have 5% bigger engines than private vehicles. This results in growing emissions and air pollution, increasing land use and infrastructure that causes soil sealing and biodiversity loss.

The new law on the Greening of Mobility — part of the Federal Governments climate sustainability plans — published in December 2021 introduces several amendments to the existing mobility budget scheme aiming at stimulating the usage of zero-emission company cars by January 2026. The corporate tax deduction for fossil fuels, or hybrid cars acquired, leased or rented between July 2023 and December 2025 will be progressively reduced to finally decrease to 0% of deductibility as from January 2028. Zero-emission company cars will remain deductible at the level of 100% as from 2026. Nevertheless, the percentage of deduction for zero-emission cars will be gradually decreasing as from 2027 to reach ultimately 67,5% in 2031. However, for the fossil fuel or hybrid cars acquired, leased, or rented before July 2023, the current tax deductibility rules will apply as they are. An option for employees to trade in their company car for public transport benefits has also been implemented. In the next reform, Belgium could introduce a tax-neutral measure for both company and private uses and apply the same environmental consideration of the tax rules to non-COrelated environmental impacts.

More information on the company car tax benefits and other candidates for reform in Belgium and other Member States can be found in the country case studies and factsheets compilation.