Belgium’s tax-friendly treatment of company cars is depriving the state of up to €6 billion a year in lost revenues, as calculated in a damning new report by the Federal Planning Bureau.
The analysis, published on Thursday, highlights how a system initially designed to ease wage costs has evolved into one of the most expensive and inequitable tax loopholes in the country.
Nearly 60% of new cars sold in Belgium are company cars—vehicles provided by employers but used extensively for private purposes. These are classified as an ‘advantage in kind’ and taxed far more leniently than an equivalent salary. The result, the report finds, is a steady erosion of the tax base, primarily driven by generous exemptions on income tax and social security contributions.
At the state’s expense
Under the current regime, company cars are exempt from employee social security charges, and employer contributions depend only on fuel type and CO₂ emissions.
VAT rules also allow partial recovery, regardless of actual private use. These factors combine to create a system that critics say subsidises private driving—particularly for higher earners—at the state’s expense.
Of course, the mechanisms behind this schedule don’t bring anything new to the table. But the Planning Bureau has now modelled the fiscal impact of replacing the current system with one where employees cover the full cost of private mileage or receive equivalent cash compensation.
In such a scenario, the state would collect an estimated €5.2 billion more per year by 2028, mainly through increased income tax and social charges. The annual revenue loss, upheld by the current fiscal regime, is estimated to be between €3 billion and €6 billion. Gaps in data on mileage, second-hand car values, and user behaviour obscure the precise figure.
Favorable tax treatment
At the heart of the issue are electric vehicles and plug-in hybrids, which now make up a growing share of Belgium’s company car fleet, representing between 70% and 80% of newly sold company cars.
These models benefit from the most favorable tax treatment. An electric company car, for example, results in just €187 in annual social contributions, compared with nearly €3,000 if taxed as salary.
However, EVs and PHEVs, which contribute disproportionately little to state coffers, are also a lever for a rapid greening of corporate fleets. Emissions from company cars have fallen by a third since mid-2023, dropping from 100.3 g/km to 66.6 g/km, according to HR service provider Acerta.
As the number of fully electric company cars has surged, the reference CO₂ rate used for tax calculations has fallen by 10% in a year. In that sense, the fiscal cost loss could also be interpreted as an investment in climate policy.
The argument hasn’t gone unnoticed at the international level, where Belgium has often been portrayed as an exemplar of how to discourage the sale of combustion-engined cars in the fight against CO2 emissions. “
It (…) illustrates the positive role that company cars can play in increasing the demand for electric vehicles and pulling a market toward faster electrification,” wrote ICCT researcher Sandra Wappelhorst in a report from last month.
Both progress and contradiction
The environmental benefits have a social implication, as seventy percent of companies target the two highest income groups. Calls for reform have been growing for years, despite most experts agreeing that electrification is one of the system’s great benefits. Other voices believe these tax losses should be invested in public transport.
Nonetheless, no country has successfully shifted toward an electric vehicle fleet without relying on tax incentives—and, as such, fiscal concessions. Even Norway, often held up as the gold standard for EV adoption, kickstarted its transition with generous but expensive tax breaks, although on a more comprehensive and private level. There’s a growing consensus in Belgium that the current government’s attempt to reverse the phase-out of plug-in hybrids should be abandoned.
Currently, there’s not much political will to revise the scheme. As such, the company car, remaining a symbol of both progress and contradiction, couldn’t be more Belgian.
