Enlighten your future The tax regime for highly qualified employees
The tax regime for highly qualified employees
1. Conditions
In order to stay ahead of their competitors and to develop innovative products and technologies, companies increasingly need to supplement their staff with highly competent employees with in-depth knowledge in certain specific sectors.
These candidates cannot generally be recruited on the national market or that of the Greater Region, but the employer searches for them on the global market.
To attract specialists and encourage them to settle in Luxembourg, employers are obliged to cover a large part of the costs (for example moving costs, accommodation costs, schooling costs for children)
The purpose of this circular is to regulate, in terms of income tax, the expenses and charges that the company assumes in the context of hiring qualified and specialized employees on the international market.
By impatriate, we mean:
- the employee who, usually working abroad, is seconded from a company of an international group located outside Luxembourg to carry out a salaried activity in a company belonging to the same international group;
- the employee directly recruited abroad by an indigenous company or by a company established in another member state of the European Economic Area, to carry out a salaried activity in the said company,
As long as it meets the following conditions:
• he must meet the conditions of resident taxpayer;
• he must neither have been tax domiciled in Luxembourg, nor have lived at a distance less than 150 km from the border, nor have been subject to personal income tax there in respect of professional income, at least during the 5 tax years preceding that of his entry into service in Luxembourg
Several additional conditions remain:
- To the employee in the event of secondment:
• the seconded employee must have at least 5 years of seniority in the international group or have acquired specialized professional experience of at least 5 years in the sector concerned;
• an employment relationship must exist between the sending company and the employee during the secondment period;
• the temporary assignment of the seconded employee must be accompanied by a right of return to the seconding establishment at the end of the secondment period;
• a contract relating to the employee's secondment.
- To the employee in the event of recruitment:
• the employee must have acquired in-depth specialization in a sector or profession characterized by recruitment difficulties in Luxembourg
- To the employer:
• the number of highly qualified employees cannot exceed 30% of the total workforce (full-time jobs) of the company. This condition is not required for companies that have existed for less than 10 years.
- Condition of the new job:
• the impatriate must carry out his professional activity as his main activity;
• the inpatriate must receive remuneration at least equal to an amount corresponding to at least €88,452 per year (1.5 times the average gross annual salary). As an exception, remuneration must correspond to at least €70,762 per year (1.2 times the average gross annual salary) for professions in the categories of the ISCO-08 classification.
• the inpatriate must not replace other employee(s) not covered by this circular;
• the inpatriate must put his special knowledge and know-how to the benefit of the company's staff.
2/ Characteristics of the regime
The purpose of this circular is to fully or partially cover the costs related to the employee's move out of the costs that he would have had to bear if he had remained in his original state.
In this vein, the following costs and expenses covered by the employer are considered as moving costs, provided that the sums incurred do not exceed a reasonable amount
a/ Non-repetitive expenses and charges incurred by the move: Total exemption
• moving costs to Luxembourg
• costs for fitting out accommodation in Luxembourg
• travel expenses following special circumstances (birth, marriage, death of a family member)
• the costs of final return to the State of origin
• additional tuition fees for the education of the children of the impatriate, their spouse or partner, when they move with the father or mother or one of them and must therefore change school.
b/ Repetitive expenses and charges caused by the move
• housing costs for residence in Luxembourg
• the costs of an annual trip between Luxembourg and the State of origin for the employee himself, his spouse or partner and the children of his household
• fiscal equalization of taxes
Repetitive expenses cannot exceed 50,000 euros per year, nor 30% of the total annual fixed remuneration of the impatriate. When the impatriate shares a home or common residence with his or her spouse or partner, the limit of 50,000 euros is increased to 80,000 euros.
c/ Other expenses
In order to cover certain costs related to the move falling to the employee, the employer can pay him specific compensation. This compensation covers the costs of the differential in the cost of living between the host State and the State of origin, as well as other miscellaneous costs linked to the move. These costs are only taken into account up to the fixed amount referred to below.
The monthly amount of compensation is fixed at 8% of the impatriate's fixed monthly remuneration, without being able to exceed the monthly amount of 1,500 euros. When the impatriate shares a home or a common residence with his spouse or partner, the percentages and amount of respectively 8% and 1,500 euros are increased to 16% and 3,000 euros, provided that the spouse or partner does not exercise a professional activity.
3/ Duration of the tax regime
The tax regime applicable to impatriates is granted for the entire duration of the assignment of the employee in question, but at most until the end of the 5th tax year following that of the employee's entry into service in Luxembourg. The regime also ends when one of the conditions relating to the impatriate, their employment or their employer ceases to be met.
4/ Procedure
At the start of each year (no later than January 31), the employer is required to communicate in writing a list of employees benefiting from this measure. In the event that the non-resident employer is not obliged to carry out withholding tax and the enhancement of tax credits and has not done so on a voluntary basis, the employee is liable to the taxation
