Cash for Car: The company car as medium of exchange for a mobility indemnity
On 15 March 2018, the Belgian Parliament finally adopted the draft bill which allows the employee, if they wish, to exchange their company car for a cash amount; a so-called mobility indemnity (‘Cash for Car’). In spite of the negative recommendation by the Council of State, the ‘Cash for Car’ system has retroactively entered into force on 1 January 2018.
The key characteristics of this new measure are analyzed below.
The mobility indemnity is implemented on an entirely voluntary basis, both from the employer’s side and from the employee’s side. In this respect, the employer has the choice to implement this regime for the entire company or just for a certain category of employees. Nevertheless, it is important to note that the latter distinction must be made on the basis of objective criteria.
To introduce the mobility indemnity, certain conditions must be met (whereby specific exceptions apply for new companies).
From the employer’s side:
- The employer must already have provided a company car to one or more employees;
- Such issuance should have taken place for an uninterrupted period of 36 months prior to the introduction of the mobility indemnity.
The employee on the other hand:
- Should have benefited from a company car for a period of at least 3 uninterrupted months at the moment they request to exchange their company car for cash;
- Should have benefited from a company car for a period of at least 12 months during the 36 months which preceded their request.
To avoid abuse, certain rules must be respected. For example, the mobility indemnity may not be implemented if the company car was granted in substitution or conversion of wage, premiums or other benefits in kind (‘salary sacrifice’). Moreover, the mobility indemnity cannot be combined with the reimbursement of commuting expenses. The employee will have to finance this cost by themselves.
Social and tax treatment
The annual amount of the mobility indemnity corresponds to 20% of 6/7th of the list price of the exchanged company car. This sum is increased by 20% if the fuel costs were, entirely or partially, paid for by the employer.
As is currently the case for a company car, the mobility indemnity which meets all the legal conditions is not subject to regular social security contributions. The employer on the other hand, must pay a solidarity contribution, equal to the amount that was due for the company car.
From a tax perspective, the mobility indemnity forms a taxable benefit in kind, since the allowance is intended to compensate for the (personal) mobility costs of the employee.
A diesel company car with a list price of 30,000.00 EUR (excl. VAT), a CO2 emission of 108, accompanied by a fuel card, would result in a monthly mobility indemnity of 514.29 EUR gross, amounting to an employer’s cost of 553.68 EUR per month (mobility indemnity + solidarity contribution).
On 16 March 2018, the Belgian government reached a political agreement introducing a ‘true’ mobility budget, intended to exist alongside the mobility indemnity. This system would allow the employee to exchange their company car for an annual budget that they are free to spend on other means of transportation. The remaining cash sum is then subject to a favorable social and tax treatment.
It is important to note that the above agreement must still be put in an official legislative text and, therefore, is still subject to modifications as to when and how these measures will be implemented.
How does this affect your business and how can K law assist you?
K law can assist you with the implementation of a ‘Cash for Car’ plan within your company and with the drafting of the necessary documents in this respect.
Furthermore, K law can help with the assessment of other possible alternatives with respect to mobility.
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