Introduction of a tax regime for expatriates in Luxembourg

In order to make the Luxembourg market more attractive and to support the expenses borne by the companies hiring qualifying international staff, the tax authorities issued a new circular (1) foreseeing a favourable tax regime for the highly skilled and specialized workers moving to Luxembourg.

The aim of this regime is to increase the competitiveness of the companies and facilitate the expatriation of these highly skilled workers, like neighbouring countries such as France, Belgium or the Netherlands.

The regime takes the form of a tax relief - total or partial - of the costs and expenses borne by the undertaking receiving the expatriates.


Entrance into force of the circular

The rules of the circular are applicable to the highly skilled workers who move to Luxembourg after 31 December 2010.

Eligible employees

Two types of employees are concerned by the circular: the employees temporarily seconded by their foreign employer to a Luxembourg company of the same international group (2)  and the employees recruited abroad.

 

Conditions relating to the employer

The employer has to employ - or commit to employ in the medium term - at least
20 employees working full-time in Luxembourg. The qualifying employees must not exceed 10% of all staff (except for the undertakings existing for less than 10 years in Luxembourg).


Expenses and costs not taxable in the hands of the expatriate

The costs and expenses borne by the Luxembourg company within the framework of the expatriation do not constitute taxable employment income in the hands of the expatriate (and remain tax deductible expenses for the company) under the following conditions:

 

 

 

 

 

 

 

 

Duration of the expatriate regime and procedure

In order to benefit from the special tax regime, the Luxembourg undertaking will have to file - within 2 months following the arrival of the expatriate - a written motivated application with the competent withholding tax office.

The regime might be granted for up to 5 years following the year of the expatriate’s arrival in Luxembourg.

It might end before if one of the conditions foreseen by the circular is not met any more (in case of change of function within the company for example).


Annual reporting

No later than 31 January of each year (4) , the employer should provide the withholding tax office with a list of the employees benefitting from the regime of the circular.

 

 

 

 

(1)  Circular of the Director of the Tax authorities L.I.R. n°95/2 dated  31 December, 2010 - “Encadrement fiscal des dépenses et charges en relation avec l’embauchage sur le marché international des salariés hautement qualifiés et spécialisés”.

(2)  International group means undertakings financially linked and established in at least 3 countries (including Luxembourg). One company forms an international group with another one where the latter holds directly or indirectly 25% - or more - of the shareholding of the former or the voting rights related to its shares.

(3)  Excluding any additional benefit in kind or in cash.

(4)  The first annual reporting should take place the 31 January 2012 at the latest.

IF Group is not responsible for any errors, omissions or for the results obtained from the use of this information. The information contained in this document is for general guidance on matters of interest only.