In order to recruit highly skilled workers on the international market and attract them to Luxembourg, employers often have to pay a significant portion of their relocation, accommodation and travel expenses.
The employer can then:
- pay these expenses without such amounts being deemed to form part of the highly skilled worker's income (benefit in kind);
- and declare these expenses as an operating expense for the company.
Who is concerned
The Luxembourg Inland Revenue (ACD) defines highly skilled workers as follows:
- an employee who usually works abroad and is posted by a business located abroad to carry out a salaried activity in a business incorporated in Luxembourg belonging to the same international group;
- an employee recruited from abroad by a business incorporated in Luxembourg to carry out a salaried activity in Luxembourg.
In the case of companies, a group is deemed to exist when one company directly or indirectly holds 25 % or more of the capital of the other company or of the votes attached to shares thereof.
This regime does not apply to employees recruited on the basis of a temporary contract by a temporary work agency or within the framework of employee leasing.
General conditions applicable to highly skilled and qualified workers
Highly skilled workers must:
- meet the conditions of resident taxpayer;
- not have been tax resident in Luxembourg or subject to personal income tax on professional income in Luxembourg in the 5 tax years preceding the year in which they commence work in Luxembourg;
- not have lived closer than 150 km from the Luxembourg borders;
- have a higher education diploma and technical expertise or at least 5 years' specialised professional experience in the relevant sector which is needed by the local business or which the local business 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:
- the employee must have worked for at least 5 years with the international group or have at least 5 years' specialised professional experience in the sector in question;
- a working relationship must exist between the posting business and the employee during the period of posted work;
- the temporary assignment of the posted worker must come with the right to return to the posting entity 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 workers recruited from 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 business' total staff (full time employees) may benefit from this regime. This condition does not apply to businesses which have been operating in Luxembourg for less than 10 years.
The empoyee must:
- carry out their professional activity as their main activity;
- be paid a fixed annual salary of at least EUR 50,000 (gross amount before benefits in cash and in kind);
- share their specialised knowledge and expertise with staff of the local business to foster sustainable development of the relevant activities in Luxembourg.
The employee must not replace other employees not covered by the provisions of this regime.
Entry and residency conditions for workers from non-EU countries
Workers from third countries (i.e. non-EU countries or countries treated as such) must also apply for a temporary authorisation to stay before entering Luxembourg:
- workers recruited from abroad by a business incorporated in Luxembourg should apply for a temporary authorisation to stay for highly skilled workers;
- workers posted by a business located outside of Luxembourg and belonging to an international group should apply for a temporary authorisation to stay for posted workers.
The following are treated as EU Member States:
- Iceland, Liechtenstein and Norway as signatories of the European Economic Area (EEA) Agreement;
- the Swiss Confederation.
How to proceed
Applicable tax regime
The tax regime which applies to highly skilled workers is granted for the full period of the worker's assignment but only up until the fifth year of taxation following the workers entry into service. It is therefore not necessary to reapply to the ACD for this tax regime.
Relocation costs borne by the employer are recorded as an operating expense in the company books.
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 with the names of 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 conditions necessary for eligibility.
Eligible relocation expenses and costs
Provided that the amounts in question remain reasonable, the following relocation expenses and costs may be deducted as operating costs:
- one-off costs and expenses incurred as a result of relocation:
- moving expenses for transferring the highly skilled worker's place of residence;
- costs associated with furnishing and accommodation arrangements in Luxembourg;
- 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 relocation from another country:
- accommodation expenses in respect of the Luxembourg residence;
- cost of one return trip per year between Luxembourg and the country from which the worker relocated, for the worker, his spouse / partner and dependent children;
- tax equalisation with regard to domestic taxes.
The recurring expenses listed above may not exceed EUR 50,000 per year (EUR 80,000 where the worker lives with his spouse/partner) or 30 % of the highly skilled worker's total annual fixed salary.
- school fees for children;
- fixed allowance to cover the difference between the cost of living in Luxembourg and in the country from which the worker relocated.
The monthly amount of this allowance is fixed at 8 % of the employee's fixed monthly salary and may not exceed EUR 1,500 (or 16 % and EUR 3,000 respectively if the employee lives with a spouse/partner who does not work).