Favourable Changes To The Tax Regime Applicable To Highly Qualified And Specialised International Employees In Luxembourg

The Luxembourg Inland Revenue (Administration des Contributions Directes) changed the special tax regime for highly qualified international employees by way of amending the circular 95/2 on 27 January 2014. The objective of this regime, initially introduced on 31 December 2010, was to strengthen the competitiveness of Luxembourg companies by giving them the means to hire staff internationally and to encourage potential candidates to establish themselves in Luxembourg ("impatriates").

Key takeaways:

Tax exemptions for certain recurrent and non-recurrent expenses; Certain expenses constitute costs for the employer and do not result in an income of the impatriate; Enlargement of the scope for the companies established in member states to the Agreement on the European Economic Area. Objectives of the circular no. 95/2 introduced by the Luxembourg tax authorities

On 31 December 2010 the Luxembourg Inland Revenue (Administration des Contributions Directes) introduced a special tax regime for highly qualified international employees by way of the circular 95/2. The objective of this circular was to strengthen the competitiveness of Luxembourg companies by giving them the means to hire staff internationally and to encourage potential candidates to establish themselves in Luxembourg ("impatriates"). In fact, highly qualified staff cannot always be found in the Greater Region of Luxembourg. As is generally known, hiring abroad implies significant costs for employers (moving costs, school fees of children, travel costs, e.g. for visits to the employee's home country etc.)

Previously, the assumption of certain costs directly or indirectly related to the employee's establishment in Luxembourg by the employer was subject to taxation in Luxembourg as they were considered benefits in-kind received by the employee.

To avoid a negative effect on the impatriate's net salary, the employer then adjusted the employee's gross salary which in turn created additional costs for the employer.

Thanks to this circular the employer now benefits from tax exemptions for certain recurrent and non-recurrent expenses related to the establishment of its impatriates in Luxembourg such as moving costs, travel expenses of the employee and its family etc.

The expenses listed above constitute operating costs for the employer. However, within the limits and subject to the conditions set out in the circular, they do not result in an income for the impatriate.

With the aim to...