Provision of company cars to employees for private use as a barter-like transaction

Background

In its Circular dated 03 March 2026, the German Federal Ministry of Finance (BMF) commented on the VAT treatment of providing company cars to employees for private use. The letter reflects recent case law of the German Federal Fiscal Court (BFH) (in particular BFH dated 30 June 2022, V R 25/21) and incorporates these principles into the official German VAT Application Decree.

Key statement

According to BFH case law, the provision of a company car for private use is generally to be classified as a barter-like transaction (“tauschähnlicher Umsatz”). This applies in particular where the private use is based on an individual employment agreement and forms part of the total remuneration, thus constituting consideration subject to VAT.

As the provision of the vehicle typically takes place over a longer period and enables continuous private use, it is generally classified as a long-term hiring of a means of transport. The place of supply is therefore determined in accordance with Section 3a (3) no. 2 sentence 3 German VAT Act (UStG) and is located in the country where the employee has their residence (e.g. for an employee working in Luxembourg but residing in Germany, the place of supply is typically Germany).

The BMF follows this view but goes beyond existing case law by extending its scope of application.

Extended view of the German tax authorities

According to the German tax authorities, a remunerated provision of a vehicle will generally also be assumed even in the absence of an explicit employment contract provision, namely already where:

• verbal agreements exist, or
• the use results from established company practice (de facto company custom)

This significantly broadens the scope of application.

Determination of the place of supply

Where a barter-like transaction with respect to company cars exists:

• The provision of the vehicle is generally treated as a long-term hiring of a means of transport
• The place of supply is therefore generally the employee’s place of residence in accordance with Section 3a (3) no. 2 sentence 3 UStG

This is particularly relevant in cross-border situations.

Example:

If an employer is based in Luxembourg and the employee resides in Germany, the place of supply is Germany, meaning the provision of the vehicle is subject to German VAT.

Practical implications and recommendations

The new rules particularly affect foreign companies and, in border regions, especially Luxembourg employers providing company cars to employees residing in Germany.

This may result in:

• VAT obligations in Germany
• Registration and reporting obligations in Germany
• Need to adjust existing remuneration and contractual structures

There is also a risk that such situations were not correctly treated for German VAT purposes in the past.

Recommended actions

We recommend reviewing existing company car arrangements promptly, in particular with regard to:

• contractual structuring
• existence of a barter-like transaction
• correct determination of the place of supply

Luxembourg companies providing vehicles to employees residing in Germany should, if not already done, urgently assess the new requirements and identify any need for action.

We would be pleased to assist you in analysing your individual situation and implementing the necessary measures – from VAT classification and German VAT registration to the adjustment of your existing structures.

Please feel free to contact us to identify risks at an early stage and ensure full compliance.

Status: 25 March 2026