Tax Regime for Highly Qualified Impatriate Employees

In an open and competitive economic environment, Luxembourg strives to strengthen its position as a destination of choice for international talent. To better meet labor market needs and encourage the relocation of highly skilled professionals, the impatriate tax regime has recently been reformed. This reform pursues a dual objective: enhancing the country’s attractiveness and simplifying the implementation of an existing framework.

1. Who is considered an impatriate employee?

An impatriate employee is someone who has been recruited abroad or seconded by their employer to carry out a professional activity in Luxembourg. This should not be confused with a cross-border worker, who resides in a neighboring country but commutes daily to work in Luxembourg.

In a tight labor market, highly skilled employees play a strategic role in the national economy. Their expertise directly contributes to innovation, business competitiveness, and the development of key sectors such as new technologies, finance, and research.

2. The New Tax Regime Effective as of 2025

a. Key Features

As of January 1, 2025, Luxembourg has introduced a simplified tax regime for impatriate employees, aiming to enhance the country’s appeal to international talent. The new framework is characterized by the following elements:

• Flat 50% Tax Exemption:
  The regime grants a 50% exemption on gross annual remuneration, capped at €400,000. This exemption applies exclusively to gross salary and excludes benefits in kind and any other already tax-exempt income.

• Extended Duration:
  The maximum application period of the regime is eight years, providing long-term tax stability for eligible employees.

• Simplified Structure:
  The new regime replaces the previous system based on the deductibility of specific expenses (such as relocation, housing, or schooling costs) with a flat-rate approach, thereby reducing the administrative burden for both employers and employees.

b. Eligibility Criteria

To qualify for the impatriate tax regime, employees must meet the following conditions:

• Tax Residency in Luxembourg:
  The employee must establish tax residence in the Grand Duchy upon taking up their position.

• No Recent Tax or Employment Link to Luxembourg:
  The employee must not have been a Luxembourg tax resident or worked in Luxembourg during the five years preceding their arrival.

• Geographical Distance:
  The employee must have resided more than 150 kilometers from the Luxembourg border during the five years prior to relocation.

• Minimum Gross Annual Remuneration:
  The gross annual salary must be at least €75,000, excluding benefits in kind and other already exempt income.

• Primary Work Activity in Luxembourg:
  At least 75% of the employee’s working time must be spent within Luxembourg.

• Company Limitation Rule:
  The number of employees benefiting from the regime may not exceed 30% of the company’s total workforce.

These criteria aim to target genuinely international profiles, prevent misuse of the regime, and ensure that the tax advantage is reserved for cases of real and strategically beneficial mobility for the Luxembourg economy.

c. Application Procedure

The implementation of the impatriate tax regime must be initiated by the employer. The employer is required to submit a nominative list of employees proposed for the regime to the Luxembourg Tax Administration (Administration des Contributions Directes – ACD). This is done through a grouped declaration, including all relevant information needed to verify each employee’s eligibility.

The ACD conducts a posterior review to ensure compliance with the eligibility conditions. No prior approval is required; however, companies must retain all supporting documentation for the entire duration of the regime’s application.

3. Comparison with the Former Regime

The new impatriate tax regime, effective as of January 1, 2025, aims to streamline and simplify a system previously considered overly complex and administratively burdensome. While the former scheme was based on the exemption of specific expenses and required extensive documentation, the new mechanism introduces a flat-rate 50% exemption, capped at €400,000 of gross remuneration.

Employees already in post prior to 2025 have the option to choose between the old and the new regime; however, this choice is irrevocable once communicated to the tax administration.

4. Impacts on Employers and Employees

The impatriate tax regime produces tangible benefits for both employees and employers, offering tailored advantages aligned with their respective goals in terms of talent attraction and competitiveness.

a. For Employees

This scheme results in a significant increase in net income, making relocation to Luxembourg more accessible and financially attractive for highly skilled professionals. In a context where housing and living costs can act as deterrents, this tax benefit facilitates international mobility and supports long-term integration into the Luxembourg labor market.

b. For Employers

For companies, the regime serves as a strategic recruitment tool—particularly valuable in sectors facing shortages of specific skill sets. It enables employers to offer more attractive compensation packages without adding administrative burden. However, the regime may lead to noticeable tax disparities among employees. It is therefore essential to anticipate long-term effects and ensure fair internal treatment to maintain team cohesion.

5. Comparison with the Tax Regimes of Neighboring Countries

In a competitive European landscape, several neighboring countries have implemented tax regimes to attract highly skilled professionals. Luxembourg’s new impatriate regime stands out in this context due to its clarity, generosity, and administrative simplicity.

Comparative Overview

Luxembourg’s Positioning

Thanks to a simple and generous flat-rate exemption—50% of gross salary up to €400,000 over eight years—Luxembourg offers a highly competitive regime in the region. Unlike more complex or variable systems in neighboring countries, Luxembourg’s approach ensures predictability, ease of implementation, and clear eligibility rules, making it a preferred choice for employers and international professionals alike.

6. Conclusion

The new impatriate tax regime provides a clear and attractive framework for attracting qualified talent to Luxembourg. It offers companies an effective tool to strengthen their competitiveness in a global labor market.

Despite its ease of implementation, we strongly recommend consulting a tax advisor to ensure compliance with the eligibility criteria and proper application of the regime.

Indeed, while a simple declaration is sufficient to benefit from the regime, it is important to note that tax authorities conduct post-audit verifications. Any failure to meet the conditions may have significant consequences for the parties involved.

7. FAQ

a. Who is eligible for the impatriate tax regime?

Employees who are recruited from abroad or seconded to Luxembourg, who have not been tax residents or professionally active in Luxembourg during the past five years, and who resided more than 150 km from the Luxembourg border.

b. What is the main tax benefit?

The regime offers a flat-rate exemption of 50% on gross annual remuneration ranging from €75,000 (minimum) to €400,000 (maximum), for a maximum duration of 8 years.

c. How can one benefit from the regime?

The employer must submit a list of eligible employees to the Luxembourg Tax Administration (Administration des Contributions Directes – ACD). No prior approval is required, but post-implementation audits may be conducted.