Luxembourg expatriate tax regime - Starting 2011 with a bang! | Whitepaper |
The Luxembourg authorities have introduced some rules specific for expatriates qualifying as highly skilled workers – the result is the potential for significant tax savings for both expatriates and their employers.
The issue
Circular LIR n°95/2 issued on 31 December 2010, provides details of an expatriate tax regime which will come into effect 1 January 2011. There are a number of conditions attached for the employer and the employee, however, once you navigate through these, the numbers are definitely worth the work!
A summary of the conditions1
The legislation applies to new expatriates coming to Luxembourg (from 1 January 2011). The new rules will not apply to existing expatriates or contract workers, but will apply to individuals already working within a group or individuals directly recruited from abroad, although slightly different conditions are applied to each scenario.
| General conditions for expatriate | Additional conditions to be met | |
|---|---|---|
| In case of an intra-group secondment | In case of a recruitment | |
| Provide a significant economic contribution to Luxembourg | Have at least 5 years of seniority in the international group/sector concerned | Have acquired a depth specialisation in a sector or profession characterised by difficulties of recruitment in Luxembourg |
| Be tax resident in Luxembourg (based on domestic tax law) | Employment relationship exists between sending company and employee | |
| Not have been Luxembourg tax resident/subject to Luxembourg income tax on professional income for the 5 previous years | The secondee must be granted a right to return to the home company | |
| Have a degree of higher education/have acquired professional experience of at least 5 years in the sector concerned | Contractual arrangement exists between the home and host companies with respect to secondment | |
| Undertake the local employment as their primary employment and pass on knowledge to local personnel | ||
| Meet minimum salary requirements and must not replace a non-expatriate employee | ||
1The conditions and definitions in the circular are detailed and we have listed brief highlights here - to determine if the regime could be applicable to your organisation,please contact us to discuss the details.
Employer conditions - the Luxembourg entity must employ or commit to employ at least 20 full-time employees in Luxembourg. If the entity has been established in Luxembourg for at least 10 years, they can only have a maximum of 10% expatriate employees who benefit from this regime.
An application to benefit from the regime must be filed within 2 months of each starting assignment and an annual review must be submitted by the employer.
The good stuff
If the conditions are met, it is possible to obtain tax relief for certain expenses which fall under the following categories:
| Expense | Details/limitations | |
|---|---|---|
| Relocation | Includes costs of moving to Luxembourg and repatriation at end of secondment, as well as costs to make home suitable to live in (defined in circular) and costs for emergency travel | |
| Rent/utilities | Tax exempt amount depends on whether a home is maintained in the home country | Combined costs subject to an overall cap |
| Home leave trips | One trip per year per family member | |
| Tax equalisation | Costs associated with the difference in taxes between Luxembourg and the home country | |
| School fees | Deduction available for primary and secondary education | |
| Lump sum for recurring expenses | To cover cost of living allowances and miscellaneous expenses associated with expatriation, the allowance is, again, subject to a cap | |
The expatriate can benefit from the regime for up to five calendar years following the year of arrival, provided the conditions continue to be met.
Figures
For example, the tax relief that an expatriate married with 2 children and with a typical expatriate package can get in the year of arrival in Luxembourg:
| Gross income | Relief available under regime |
Taxable income |
Annual tax saving from regime | |
|---|---|---|---|---|
| Salary | 200,000 | 0 | 200,000 | 55,309 |
| Relocation | 30,000 | 30,000 | 0 | |
| Housing | 36,000 | 60,000 | 61,000 | |
| Home leave | 5,000 | |||
| Tax equilisation | 80,000 | |||
| School fees | 28,000 | 28,000 | 0 | |
| COLA/lump sum | 24,000 | 24,000 | 0 | |
| Total (€) | 403,000 | 142,000 | 261,000 |
How Deloitte can help
| Expense | Details/limitations |
|---|---|
| Assessment of eligibility | An initial assessment to establish whether or not the regime will be applicable for a particular expatriate |
| Package design | Consulting services to review/design an expatriate package and contractual arrangement to maximise savings available through the regime |
| Format request | Preparation of formal request to benefit from the regime including collation of data from company and expatriate |
| Annual review | Preparation and submission of annual report including confirmation that conditions continue to be met |
| Tax return preparation services | To ensure correct reporting of income and claim for reliefs under the regime |
Why Deloitte?
Choosing Deloitte to work with you to implement the expatriate tax regime will mean a proactive reaction to the new legislation. Having a deep knowledge and experience of international mobility and foreign expatriate regimes, we are a step ahead in our understanding of this new regime.
By working with us, you will be able to quickly make decisions about how best to implement the regime in relation to your expatriate population.
Your expatriates will be informed about any implications on their personal tax affairs. By moving swiftly to maximise the benefits from the changes, you will maximise tax savings for all new expatriates.
Rely on us to manage this change, maximise the potential savings and enhance your expatriate programme.
| The Global Employer Services department is a dedicated team of highly skilled tax professionals providing comprehensive consultancy and compliance services in the area of individual taxation and social security. Our solid knowledge of local and international regulations, combined with our wide experience of individual engagements and issues allow us to serve our clients in a tailored, responsive and value-added manner. Being an active member of the global GES network present in more than 100 countries, we have a unique expertise of cross-border matters and multi-jurisdictions engagements and are able to deliver our services with an entirely borderless approach. |
Page Last Updated
Luxembourg - expatriate tax regime | Starting 2011 with a bang!
(1239.60 KB)
