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28.05.2021

Car taxation: what does the future hold?

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Last month, Finance Minister Vincent Van Peteghem unveiled his long-awaited mobility reform plan, the main purpose of which is to make our vehicle fleet greener. A major part of this plan relates to car taxation that will change radically starting in 2023.

In the meantime, the proposal has been the subject of much debate in government circles and a final draft bill is now available. Despite the fact that the new regulations on the table today may not yet be regarded as definitive, the broad outlines are already clear.

Below we explain the most important changes so that it is immediately clear what you need to consider when purchasing a future company car.

 

1. The current tax game rules for company cars

To fully understand the changes that will come into effect systematically from 2023 onwards, it is important to briefly review the current tax system for company cars:.

By company car we mean a passenger car in the usual sense of the word that can be used for both professional and private travel. Specific commercial vehicles such as light goods vehicles are not referred to here and will not be affected by the new rules for the time being.

The tax deductibility of company cars is determined according to a certain formula in which the CO2 emissions of the car and the type of engine have the greatest impact on the outcome of the formula. In general, it can be assumed that the higher the emissions of the car, the smaller the tax deduction. However, the deduction can never be smaller than 40% and never higher than 100%.

Most gasoline and diesel cars today have a tax deductibility between 50% and 65%. The costs associated with electric cars, on the other hand, are fully deductible for the simple reason that these cars have no emissions and the formula thus results in a deductibility of 100%.

Hybrid cars that combine a fuel engine with an electric motor are also almost always 100% deductible. To prevent abuse, however, the tax authorities have introduced a number of additional conditions for such hybrid cars to benefit from this full deduction. So-called fake hybrids where the battery capacity is negligible in relation to the car weight, are equated to a car with only a fuel engine, resulting in a lower deductibility.

The CO2-emissions of a car can be expressed according to two standards being NEDC 2.0 or WLTP. The WLTP standard is a stricter standard and the successor of NEDC. Consequently, the WLTP emissions of cars are usually higher than those according to the old standard. For income tax purposes, the tax authorities allow the lower of these two standards to be retained if they are indicated for the car on the certificate of conformity and the car was purchased before 01/10/2021. However, starting in 2021, the emissions of all new cars will only be disclosed according to the WLTP cycle. Cars purchased after 1 October of this year for which no WLTP emissions are known will be assigned a high fixed emission value so that the use of older cars as company cars will be strongly discouraged.

 

2. Gradual transition new system starting in 2023

Cars purchased from 01/07/2023 onwards will be in a transitional phase and will gradually be brought into the new system. Cars purchased before 01/07/2023 (= signed order form) will keep their old tax system as explained above.

 

2.1 Wagons with only an internal combustion engine

From 01/07/2023 the tax deductibility of company cars with only an internal combustion engine (gasoline or diesel) is systematically reduced to 0. This limitation will take effect from assessment year 2026 (financial year started on 01/01/2025 at the earliest).

The maximum tax deductibility of these cars is phased out as follows:

  • AJ 2026: 75%;
  • AJ 2027: 50%;
  • AJ 2028: 25%;
  • AJ 2029: 0%.

 

Cars with only an internal combustion engine purchased as of 01/01/2028 are therefore no longer tax deductible.

 

2.2 Wagons with internal combustion and electric motors

The deduction rules for hybrid cars are identical to those for internal combustion engine only cars with the exception of the (fossil) fuel costs. As of 01/07/2023, the deduction for the gasoline and diesel costs of a hybrid car will always be limited to 50%.

 

2.3 Wagons with an electric motor only

The future according to the government. These cars will retain their full tax deductibility up to and including assessment year 2027 (financial years starting on 01/01/2026 at the earliest). From then on, the tax deductibility of these cars will also be reduced in stages to a lower percentage, namely 67.5%.

This goes as follows:

  • AJ2028: 95%;
  • AJ2029: 90%;
  • AJ2030: 82.5%;
  • AJ2031: 75%;
  • AJ2032: 67.5%.

 

3. A charging station for everyone

When you say electric car, you also say charge point. To stimulate the growth in available (smart) charging stations, the government will provide a tax reduction for individuals who invest in such a charging station at home. Those investing between 01/09/2021 and 31/12/2022 can count on a tax reduction of 45%. In 2023 the rate will be 30% and in 2024 15%. The maximum benefit is €1,500 per charging station.

Companies can also count on additional support if they invest in charging stations that are also publicly accessible. Between 01/09/2021 and 31/08/2024, there is an increased cost deduction for such investments.

 

Do you have questions about the 2022 car tax? Our tax advisor has the answers.

Also read our other articles on the news page.