The new tax regime exempts from tax 50% of the total gross annual salary (excluding tax-exempt cash and in-kind benefits) of qualifying inpatriates, with a cap of EUR 400,000 per year.

The main conditions to be met in order to benefit from the inpatriate tax regime remain largely the same as under the old regime, i.e.:

  1. The inpatriate must be resident in Luxembourg.
  2. In the previous five years, the inpatriate should neither have been resident or subject to income tax in Luxembourg nor have been living less than 150 km from the Luxembourg border.
  3. The inpatriate may either be seconded to Luxembourg from abroad or recruited in Luxembourg from a foreign country.
  4. The annual gross remuneration must be at least 75,000 EUR.
  5. The number of inpatriates must not exceed 30% of the total workforce of the company. This condition is not required for companies established for less than ten years.
  6. As a new requirement, the inpatriate must engage in the professional activity for which he benefits from the regime for at least 75% of his working time.
  7. By January 31 of each year, the employer must provide the Luxembourg tax authorities with a list of the inpatriate workers it employs.

For inpatriates who benefited from the regime before 1st January 2025, the old regime will remain applicable to the extent that the conditions under the old regime continue to be met. Existing inpatriates may also opt into the new regime and a request (which will be irrevocable) should be made to the tax authorities.

The nominative list of taxpayers who have opted for the application of the impatriate regime in its version applicable as from the 2025 tax year must be communicated to the competent tax office by 31 January of the 2026 tax year at the latest. Once switched, employees may benefit from the new regime until the end of the eighth year following their initial employment start date in Luxembourg.

The new regime is therefore a very good tool for improving Luxembourg's competitiveness and attractiveness. However, this is not the only benefit. Its practical aspects and in particular its simplicity and ease of use make it a considerable advantage. The regime is now simpler to set up and does not involve any major administrative complications. This element is more reassuring and certain for employers, who are ultimately responsible for calculating payroll tax. There is no doubt that the combination of these two benefits could convince employers to make more use of the impatriate regime.

From a social security perspective, even though inpatriates continue to be covered against sickness, pension and dependency risks, it is important to remember that social security contributions relating to the exempt portion of remuneration are not deductible when calculating payroll tax. Employers should make sure that only the social security contributions relating to the non-exempt portion of the salary are tax deductible, otherwise the tax calculated will be incorrect and employers will be held liable for the missing taxes.

To benefit from the impatriate regime, employers have to ensure that the employee has an employment contract compliant with Luxembourg law or is correctly transferred from a group company. Employees should either be recruited for a newly created position or replace an employee who already benefits from the impatriate regime.

While the creation of a new position is a straightforward situation, the replacement of an existing employee raises some legal questions. The Labour Code only refers to the notion of “replacement” in the context of fixed-term contracts, notably to replace an employee who is temporarily absent or whose employment contract has been suspended. Therefore, it is not possible to dismiss an employee who do did not benefit from the impatriate regime and “replace” such an employee with an impatriated employee.

However, if an employee indeed replaces an employee who benefits from the impatriate regime and who is for example on long sick leave, or on parental leave, such an employee will also benefit from the impatriate regime as long as the other conditions are met. It is also possible for employees who are seconded by a group company for a limited period of time and who are afterwards replaced by another seconded employee to benefit from the impatriate regime.

If the employee is a third country national, the employer should consider the type of permit to be requested. For recruitment in a long-term role, the EU blue card, which is valid for up to 4 years and is renewable, would likely be the most appropriate permit. In the case of a short-term assignment within the group, a permit specifically linked to the employer as an intra-group transferred employee would be best used.  

First published by Paperjam.