Expat taxes in Luxembourg

Posted: June 16th, 2014 Ahn LuxembourgThe village of Ahn

In Luxembourg the taxation of individuals is based entirely on the concept of residence, regardless of nationality. Generally, individuals are considered to be resident when they maintain a residence in Luxembourg with the intention of remaining other than temporarily. A stay of six months is deemed to be residence. Most types of compensation and benefit paid to employees are taxable.

Traditionally, there have been no special privileges or exemptions for expatriate workers, although an expatriate tax regime for highly skilled employees detailed in Circular LIR n°95/2 issued on December 31, 2010, came into force on January 1, 2011, and provides for significant tax savings for both employer and employee. In order to qualify for the scheme, the employee must:

1. not have been resident or subject to Luxembourg income tax on professional income in the previous five years;

2. be a Luxembourg tax resident during the application of the expatriate regime;

3. hold a university degree or equivalent and be a technical expert, or have professional experience of at least five years in the sector of activity which the Luxembourg company aims to expand;

4. contribute to the development or creation of economic activities with high added value in Luxembourg;

5. not replace any employee which is not covered by the Circular.

When the criteria have been met, the following expenses qualify for tax-exempt status:

A. One-off moving costs and house fit-out expenses for the transfer of the household of the expatriate to Luxembourg and for his/her final return at the end of the assignment;

B. Travel expenses for emergencies;

C. Regular housing costs up to EUR50,000 per annum (increased to EUR80,000 when shared with life partner) and 30% of the annual fixed remuneration of expatriate;

D. School fees;

E. Specific cost of living allowance capped at EUR1,500 per annum.


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