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 seconded 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 2010. The regime is available for 5 years.
Who is concerned
The Luxembourg Inland Revenue (Administration des contributions directes) considers the following to be 'highly skilled and qualified employees' (also called impatriates):
- employees who usually work abroad and are posted by a company located abroad to work in a company established in Luxembourg belonging to the same international group;
- employees hired abroad directly by a company established in Luxembourg, or by a company operating in Luxembourg but established in another member state of the European Economic Area.
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.
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 a higher education diploma and 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 from a company located outside of Luxembourg and belonging to an international group must, in addition, satisfy the following conditions:
- 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 seconding company and the employee during the period of secondment;
- the temporary assignment of the posted worker must provide for the right to return to the seconding company at the end of the secondment period;
- a contract relating to the worker's posting must be concluded between the seconding 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
The local company satisfy the following conditions:
- employ, or undertake to employ in the medium term, at least 20 employees under a full-time contract in Luxembourg;
- 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 fewer than 10 years.
The empoyee must:
- be employed for a job that is their main professional occupation;
- earn a fixed annual salary in Luxembourg of at least EUR 50,000 (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 must not 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 from third countries—i.e., countries which are neither members of the European Union nor treated as such—must also apply for a temporary authorisation to stay before entering Luxembourg:
- workers hired abroad directly by a company established in Luxembourg must apply for a temporary authorisation to stay for highly skilled and qualified workers;
- workers seconded by a company located outside of Luxembourg and belonging to an international group must apply for a temporary authorisation to stay for posted workers.
- Iceland, Liechtenstein and Norway as signatories to the European Economic Area (EEA) Agreement;
- the Swiss Confederation.
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 relocation:
- the highly qualified worker's moving costs (travel expenses for the employee, their spouse or partner, and the children in the household, accommodation expenses incurred during the journey, the costs of taking apart, packing, loading, transporting, unloading, unpacking, and setting up furniture belonging to the employee or their family, as well as the costs of converters or adapters for foreign household appliances; 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, are not covered);
- 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:
- 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. Maintenance and cleaning costs are not covered either for the new residence or for the residence maintained in the country of origin;
- if the employee does not maintain 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);
- tax equalisation in order to offset the difference in tax liability between Luxembourg and the country of origin;
- accommodation expenses in respect of the Luxembourg residence;
- additional costs for the education of the employee's children or those of the employee's spouse or partner (tuition fees for children enrolled in basic and secondary education);
- fixed allowance to cover the difference between the cost of living in Luxembourg and in the country from which the worker relocated.
Reporting of these costs by the employer as operating costs
All of the expenses listed above are considered asoperating expenses for the host company.
They are therefore not deemed 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 of their employees benefiting from this regime to the competent tax office so that the latter can check that the highly skilled workers in question continue to satisfy all of the 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.