It’s not a revolution, but certainly a step forward. Part of the by finance minister (CSV), the reform of the tax regime for impatriates should be effective from 2025. “This is a very important measure, both for strengthening the Luxembourg economy in general and for the future of the financial centre in particular,” according to his office.

Although it had already existed since 2011 via a circular from the Luxembourg Inland Revenue (Administration des contributions directes, or ACD), this scheme, which is supposed to boost the recruitment of foreign talent by rolling out a bit of red carpet under their feet, only made its appearance in law in December 2020. Since then, the text has been amended several times to offer increasingly attractive benefits to employees willing to settle here. Total or partial exemption from moving costs, furniture purchases, double rent, annual trip to the country of origin, etc. The bill tabled by the government of (CSV) makes no changes to these items, which will continue to apply. “The major change concerns the impatriation bonus,” explains Laura De Stefanis, manager of personal tax & employment advisory at BDO.

Reinforced exemption

Under the current system, the exemption is 50% of the amount of this bonus, up to a limit of 30% of the impatriate’s fixed annual remuneration (excluding bonuses and benefits in cash and in kind). “In the bill, there is no longer any mention of bonuses, and there is no longer a limit of 30%. The exemption is 50% of total gross annual remuneration, up to a limit of €400,000, again excluding benefits in cash and in kind,” says De Stefanis.

A difference of €20,000 for €130,000

Let’s take an example. This is the story of Mr X, a European resident by trade and an overqualified engineer. As well as having a CV as long as his leg, Mr X ticks all the boxes in terms of eligibility for the scheme (being a Luxembourg tax resident, having lived more than 150 km from the border in the five years prior to moving to Luxembourg, actually working, etc.). The company that recruited him offered him a gross annual salary of €100,000 euros, plus an impatriation bonus of €30,000. “Based on this example, his net salary will be €84,660” under the current system, calculates De Stefanis. Under the next scheme, that figure will rise to... €105,122 euros, she compares. That comes to more than €20,000 extra in Mr X’s pocket.

“This is an estimate based on the tax scale applicable in 2024. However, this scale is likely to be readapted and made more favourable,” notes the BDO specialist. Companies should also gain from this, as “we will achieve the same or a much higher net salary with a lower gross remuneration package.”

Simplification

The 50% exemption rule is intended not only to “simplify the system,” as points out, but also against a backdrop of tough international competition. “Luxembourg has always been an attractive location, but other countries have become very competitive. It’s useful to keep up to date by being aware of what’s being done elsewhere,” she stresses.

The bill provides that employees hired before the bill comes into force will be able to benefit from the future scheme if they apply to the tax authorities. As before, the scheme will run for eight years.

2,100 employees concerned

Since the scheme was enshrined in law, more than 2,100 new employees have taken advantage of it (737 in 2021, 739 in 2022, 629 in 2023, but this last figure provided by the finance ministry is taken from provisional data). In the first year, 180 companies made use of the scheme, 227 in the second and 211 in the third (but again, this figure is provisional).

The impact on the state’s finances “consists of tax losses of some €5.3m in 2021 and €8.9m in 2022,” according to the finance ministry. The calculations have not yet been made for 2023.

“With regard to the various bonuses that the government intends to modify or introduce (profit-sharing bonus, bonus for young employees, impatriation bonus) from 2025 onwards, the overall tax loss is estimated at between €20m and €25m. However, this estimate does not take into account the dynamic effects that these changes may have once they come into force,” add finance minister Roth’s teams.

This article was originally published in .