Luxembourg’s Parliament on December 20, 2024, adopted a tax relief bill that amends the inpatriate tax regime, in force since 2011, to significantly enhance it effective 1 January 2025. While the conditions to avail oneself of this regime were almost unchanged, the actual benefits to be derived have been substantially modified, and the overall mechanism has been made easier to use.
The main conditions to qualify for the regime are as follows:
Under the new version of the inpat regime, 50% of an employee’s annual compensation (excluding benefits in kind and certain partly tax exempt cash items) is tax exempt. The maximum annual amount that can benefit from the 50% tax exemption is EUR 400,000; in other words, the maximum exemption is EUR 200,000.
The regime applies for up to eight years after the year of arrival.
Employees who have benefited from the regime in force until 2024 can opt in to the new regime.
As in the past, no application is required to be submitted, but ex post annual reporting to the tax authorities is mandatory.
Since 2021, a profit-sharing bonus regime has been available whereby qualifying companies can pay a profit-sharing bonus to employees that is 50% tax exempt. Effective for fiscal year 2025, the maximum amount that an employer can pay as a profit-sharing bonus was increased from 5% to 7.5% of the employer’s net profits in the preceding year. At the employee level, the maximum profit-sharing bonus amount was increased from 25% to 30% of the employee’s annual salary (benefits excluded).
Rental allowance. Effective June 2024, a new rental allowance is introduced into Luxembourg legislation that allows employers to offer qualifying employees a rental bonus that is 25% tax exempt.
Employees (aged less than 30 at the start of the year) renting a property as a main residence and whose remuneration does not exceed 30 times the Luxembourg qualified employees’ minimum salary (EUR 92,553 for 2024, EUR 94,960 for 2025) are eligible for the bonus.
The rental bonus may not exceed EUR 1,000 per month, or the actual rent (excluding utilities) paid by the employee.
Young professional bonus. Effective for fiscal year 2025, a new young professional bonus is introduced that allows employers to offer qualifying employees a young professional bonus that is 75% tax exempt.
Employees (aged less than 30 at the start of the year) who sign their first permanent contract with a Luxembourg employer (or a foreign employer that has a permanent establishment in Luxembourg) after 1 January 2025 and whose annual gross salary (excluding cash or in-kind benefits) does not exceed EUR 100,000 qualify for this bonus. The maximum young professional bonus is determined based on the employee’s annual gross salary:
A few other changes, including adjustments to the tax tax brackets, increases of certain tax credits, a decrease in the flat tax rate for certain temporary workers, were also enacted.
Sylvie Leick
BDO in Luxembourg
The main conditions to qualify for the regime are as follows:
- The employee must become a resident taxpayer under Luxembourg domestic tax law;
- The employee must not have been a Luxembourg tax resident, not lived within 150km from the border, or been subject to Luxembourg income tax during the five fiscal years preceding the relocation to Luxembourg; and
- The employee must receive an annual base salary of at least EUR 75.000.
Under the new version of the inpat regime, 50% of an employee’s annual compensation (excluding benefits in kind and certain partly tax exempt cash items) is tax exempt. The maximum annual amount that can benefit from the 50% tax exemption is EUR 400,000; in other words, the maximum exemption is EUR 200,000.
The regime applies for up to eight years after the year of arrival.
Employees who have benefited from the regime in force until 2024 can opt in to the new regime.
As in the past, no application is required to be submitted, but ex post annual reporting to the tax authorities is mandatory.
Profit-sharing Bonus
Since 2021, a profit-sharing bonus regime has been available whereby qualifying companies can pay a profit-sharing bonus to employees that is 50% tax exempt. Effective for fiscal year 2025, the maximum amount that an employer can pay as a profit-sharing bonus was increased from 5% to 7.5% of the employer’s net profits in the preceding year. At the employee level, the maximum profit-sharing bonus amount was increased from 25% to 30% of the employee’s annual salary (benefits excluded).
Measures for Young Professionals
Rental allowance. Effective June 2024, a new rental allowance is introduced into Luxembourg legislation that allows employers to offer qualifying employees a rental bonus that is 25% tax exempt.Employees (aged less than 30 at the start of the year) renting a property as a main residence and whose remuneration does not exceed 30 times the Luxembourg qualified employees’ minimum salary (EUR 92,553 for 2024, EUR 94,960 for 2025) are eligible for the bonus.
The rental bonus may not exceed EUR 1,000 per month, or the actual rent (excluding utilities) paid by the employee.
Young professional bonus. Effective for fiscal year 2025, a new young professional bonus is introduced that allows employers to offer qualifying employees a young professional bonus that is 75% tax exempt.
Employees (aged less than 30 at the start of the year) who sign their first permanent contract with a Luxembourg employer (or a foreign employer that has a permanent establishment in Luxembourg) after 1 January 2025 and whose annual gross salary (excluding cash or in-kind benefits) does not exceed EUR 100,000 qualify for this bonus. The maximum young professional bonus is determined based on the employee’s annual gross salary:
Gross annual salary |
Maximum gross annual young professional bonus |
≤ EUR 50 000 | EUR 5 000 |
> EUR 50 000 and ≤ EUR 75 000 | EUR 3 750 |
> 75 000 and ≤ EUR 100 000 | EUR 2 500 |
Other Changes
A few other changes, including adjustments to the tax tax brackets, increases of certain tax credits, a decrease in the flat tax rate for certain temporary workers, were also enacted.Sylvie Leick
BDO in Luxembourg