Companies increasingly need to supplement their workforces with highly skilled workers with in-depth knowledge in certain specific sectors. To attract specialists from abroad and encourage them to move to Luxembourg, employers often have to bear a significant percentage of moving, housing, travel, child-education, and other costs.
A specific tax regime exists for the costs incurred in moving highly qualified workers and borne by the employer. Under this special tax regime, these costs may be reported as operating expenses. A highly qualified worker (impatriate) who is hired by or posted to a company located in Luxembourg may, under certain circumstances and for a limited period of time, receive a full or partial tax exemption for the expenses in kind or in cash related directly to the move to Luxembourg.
This tax regime applies to highly qualified workers who begin working in Luxembourg after 31 December 2020. The regime is available for 8 years.
Who is concerned
Those considered to be highly skilled and qualified workers (also called impatriates) are workers:
- who usually work abroad and are posted by a business located abroad to carry out a salaried activity in a business incorporated in Luxembourg belonging to the same international group;
- who were directly recruited abroad:
- by a company legally established in Luxembourg; or
- by a company operating in Luxembourg but established in another member state of the European Economic Area in order to carry out a salaried activity in said company.
A company is considered to form a group with another company when the one of the companies holds, directly or indirectly, 25 % or more of the share capital or the share voting rights of the other.
In order to take advantage of the tax regime for highly skilled and qualified expatriates, employees must be residents for tax purposes of Luxembourg.
This regime does not apply to employees hired under temporary contracts through temporary work agencies, or through labour leasing agreements.
General conditions applicable to highly skilled and qualified workers
Highly skilled and qualified workers must:
- make a significant economic contribution to or contribute to creating new high-value-added economic activities in Luxembourg;
- satisfy the conditions to qualify as a resident taxpayer;
- not have been domiciled in Luxembourg for tax purposes, or lived within 150 km of the border, or been subject to personal income tax in Luxembourg on professional income in the 5 tax years preceding the year of their entry into service in Luxembourg;
- have in-depth technical expertise, or at least 5 years' specialist work experience in the sector for which the local company needs the employee, or the sector which the local company is planning to develop in Luxembourg.
Additional conditions applicable to workers in the case of intra-group postings
Highly skilled and qualified workers posted by a company located outside of Luxembourg and belonging to an international group must meet additional conditions:
- they must have worked for at least 5 years with the international group, or have at least 5 years' specialist work experience in the sector in question;
- a working relationship must exist between the posting company and the employee during the period of posted work;
- the temporary assignment of the posted worker must provide for the right to return to the posting company at the end of the period of posted work;
- a contract relating to the posting of the worker must be concluded between the posting company and the local company in Luxembourg.
Additional conditions applicable to workers hired abroad
Highly skilled and qualified workers hired abroad must be highly specialised in a sector or profession for which there is a lack of suitably qualified candidates in Luxembourg.
Conditions applicable to Luxembourg companies
Only 30 % of the company's workforce (full-time employees) may benefit from this regime. This requirement does not apply to companies that have been established in Luxembourg for less than 10 years.
The employee must:
- be employed for a job that is their main professional occupation;
- earn a fixed annual salary in Luxembourg of at least EUR 100,000 (gross amount before benefits in cash and in kind);
- use their specialised knowledge and know-how for the benefit of the company's staff.
The employee cannot be brought in to replace other employees who are not within the scope of this tax regime.
Entry and residency conditions for workers from third countries
Employees who are nationals from an third country (i.e. from a country that is not an EU Member State nor treated as an EU Member State, such as Island, Norway or Liechtenstein) and who wish to come to Luxembourg to work for a period of more than 3 months, must follow a procedure in 2 consecutive steps:
- Step 1: before entering the country:
- submit an application for a temporary authorisation to stay to the Immigration Directorate of the Ministry of Foreign and European Affairs;
- be in possession of a valid passport;
- for persons subject to visa requirements in order to enter Luxembourg: request a type D visa after having obtained the temporary authorisation to stay;
- Step 2: after entering the country:
How to proceed
Procedure and types of expenses covered
The employee may request a contribution from their employer for the following moving costs and expenses, as long as the expenses incurred do not exceed a reasonable amount:
- one-off costs and expenses incurred as a result of relocating;
- recurring costs and expenses incurred as a result of relocating from another country.
One-off costs and expenses incurred as a result of relocating
These costs are:
- moving expenses for transferring the highly skilled worker's place of residence:
- moving expenses in relation with the transfer of the worker, the worker's spouse or partner and their dependent children, including any expenses for overnight stays during the move;
- costs of dismantling, packing, loading, transporting, unloading, unpacking and assembling furniture belonging to the employee or a member of their family;
- expenditures on transformers or adapters for foreign appliances;
- not included are: the costs of selling the employee's previous residence, or terminating the lease on their previous residence, as well as travel expenses incurred in looking for a new home;
- costs incurred in moving in to a new home in Luxembourg (purchase of furniture and household appliances that meet local standards, such as a dishwasher, washing machine, and dryer);
- travel expenses in special circumstances (birth, marriage or death of a family member);
- expenses relating to the highly skilled and qualified worker's return to their country of origin at the end of the assignment, including moving expenses.
Recurring costs and expenses incurred as a result of relocating from another country
These costs are:
- accommodation expenses in respect of the Luxembourg residence:
- to the extent that the impatriate maintains their former habitual residence in their country of origin, the admissible housing costs are rent, heating, gas, electricity, water, lifts, and related taxes and fees;
- not included are: maintenance and cleaning costs are not covered either for the new residence or for the residence in the country of origin;
- if the employee does not keep their former habitual residence in their country of origin, admissible costs include only the difference in housing costs, namely the additional housing costs incurred in Luxembourg as compared with the country of origin;
- cost of one return trip per year between Luxembourg and the country of origin for the employee, their spouse or partner, and the children in the household (admissible costs are the travel expenses);
- if related to the tax equalisation in order to offset the difference in tax liability between Luxembourg and the country of origin;
The recurring costs and expenses listed above may not exceed EUR 50,000 per year (EUR 80,000 where the worker lives with their spouse/partner) or 30 % of the highly skilled and qualified worker's total annual fixed salary.
- additional costs for the schooling of the employee's children or those of the employee's spouse or partner (tuition fees for children enrolled in basic and secondary education);
- an additional flat-rate bonus (impatriation bonus) paid by the employer to an impatriate due to the cost of living differential between the host State and the home State, provided that 50% of this bonus does not exceed 30% of the gross annual remuneration before incorporation of cash and in-kind benefits, as well as other miscellaneous expenses related to the move not mentioned under the criteria of recurring and one-off costs and expenses.
Reporting of these costs by the employer as operating costs
All of the expenses listed above are considered as operating expenses for the host company.
They are therefore deemed not to form part of the highly skilled worker's income (benefit in kind).
At the beginning of each year (by 31 January at the latest), the employer must send a list with the names of the employees benefiting from said regime to the competent tax office so that it can check that the highly skilled workers in question continue to meet all the necessary eligibility conditions. If a non-resident employer is not required to withhold taxes at source and to apply a tax credit, and has not done so voluntarily, the employee is subject to taxation by assessment.