Tax regime for inpatriates

On 1 January 2011, the Luxembourg tax authority issued a circular on employing highly skilled and specialised international employees. This circular was replaced on 27 January 2014 by a new circular which relaxes the conditions for all under the favourable tax regime for skilled and specialised employees.

The introduction of this special tax regime for inpatriates represents an important step in making the Luxembourg economy more attractive and maintaining a competitive edge.

In order to attract specialists and to encourage them to settle in Luxembourg, employers are often required to cover a large part of the expenses of the person they hire.

The circular aims to provide a framework – at the level of the taxation of wages – for dealing with the expenses and costs borne by a company when hiring highly skilled international employees. This type of framework already exists in other European countries such as Belgium, Switzerland or Sweden, for instance.

Main benefits of the regime

  • At the level of the employee: exemption of a number of recurring and non-recurring expenses and costs, incurred by the employer, linked to the expatriation to Luxembourg;
  • At the level of the employer: tax deduction of the above expenses as operating costs.

These provisions present new opportunities for the financial centre in its efforts to attract a highly skilled workforce. They also allow the financial centre to avoid previous constraints in terms of costs linked to the expatriation of a certain category of employee.

The circular covers the following expenses and costs relative to hiring expatriates (Non-exhaustive list. For a more complete listing, please consult the Circular L.I.R. – n° 95/2):

  •     Moving expenses
  •     Housing costs
  •     School fees of children
  •     Tax equalisation – difference in Income tax charge between Luxembourg and the home country
  •     Exemption of certain recurring expenses and costs
  •     Lump-sum compensation

 

Main eligibility requirements for this tax regime

Employer Employee
Employ at least 20 full-time employees in Luxembourg Qualify as a tax resident under Luxembourg law
The number of beneficiary employees cannot exceed 30% of the company’s entire staff The employee must neither have been a Luxembourg tax resident nor have been living less than 150 km from the Luxembourg border, nor have been subject to personal Income tax on his professional income during the 5 years preceding the starting date of his professional activities in Luxembourg