News - Luxembourg

Luxembourg - November 2013

Luxembourg increases tax benefits of inpatriate regime

On 21 May 2013, the Luxembourg tax authorities introduced modified rules on the Luxembourg inpatriate regime.

In accordance with a Circular first issued on 31 December 2010 and modified in May 2013 (see Resources below), qualifying expenses and allowances paid by a Luxembourg employer in connection with an inpatriate worker’s secondment or recruitment to Luxembourg do not constitute employment income or benefits in kind for the inpatriateworkers. This means that reasonable assignment-linked benefits are tax exempt.

  1. Conditions for benefiting from the inpatriate regime

    • General conditions
    • The inpatriate workers must be resident in Luxembourg;
    • They should not have been resident or subject to income tax in Luxembourg for the five years preceding the application of the inpatriate regime, nor have been living less than 150 km from the Luxembourg border.

    Additional requirements need to be met depending on whether the inpatriate workers are seconded or recruited.

    • Conditions concerning the Luxembourg employer:
    • The Luxembourg employer must have (or undertake to have in the medium term) at least 20 full-time employees on the payroll;
    • The number of inpatriate workers should not exceed 30% of the total number of full-time employees.
    • Conditions relating to employment:
    • The employment activity should not consist of temporary work;
    • The annual gross remuneration must be at least EUR 50.000.
  2. Benefits of the new regime

    The Circular provides for a list of “exempt” assignment-linked benefits.

    Transfer of residence One-off expenses linked to the move itself (e.g. moving costs, travel costs)
    Travel expenses Costs incurred by the inpatriate worker for travelling on special occasions (e.g. births, weddings)
    Regular expatriation expenses Certain housing expenses and tax equalization expenses, up to the lower of EUR 50.000 (EUR 80.000 for couples) and 30% of the inpatriate worker’s total annual fixed remuneration
    School fees Certain schooling costs
    Cost of living Allowances Fixed at a standard rate of 8% of the monthly remuneration of the inpatriate worker, not to exceed EUR 1.500 per month (16% and EUR 3.000 for couples)
  3. Practical aspects

    The inpatriate regime came into force on 1 January 2013. It applies for a maximum period of six years and ceases to apply when the relevant conditions are no longer met.

    By 31 January of each year at the latest, the Luxembourg employer must provide the Luxembourg tax authorities with a list of the inpatriate workers it employs. Failure to respect the Circular’s provisions will lead to revocation of the inpatriate regime.

Resources:

Circular dated 21 May 2013 (in French language)

For further information or to discuss the consequences of the above, please contact Kheira Mebrek, (kheira.mebrek@loyensloeff.com) on +352 466 230 292 at Loyens & Loeff Luxembourg.

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