New tax regime for highly skilled expatriates
The number of highly skilled expatriates working in Luxembourg has grown continually over the last couple of decades. Alongside a number of other EU Member States, Luxembourg has now adopted a special tax regime for expatriates. In a new Circular, the Tax Director provides details for companies hiring experienced personnel on the international market.
Where the required conditions are met, both the employer and the expatriate employee can benefit from tax advantages relating to the costs of the move itself and certain repetitive expenses in the area of housing, school fees, family travel expenses and tax equalisation expenses. The regime will be applied to expatriates who move to Luxembourg after 31 December 2010.
According to the Circular, the highly qualified employee must contribute to the creation of new economic activity of high added value for Luxembourg and must be tax resident in Luxembourg.
The company that hires the highly qualified employee must undertake to hire at least 20 full time employees in Luxembourg (or plan to do so within the medium term). The number of highly qualified staff may not represent more than 10% of the total staff of the company, a condition that does not have to be met for companies in existence for more than 10 years.
In the Circular, the Tax Director lists a series of relocation expenses, including the cost of equipping a house in Luxembourg and expenses relating to travel for special reasons such as a birth, wedding or death within the family.
Where school fees are concerned, the qualifying expenses relate to school fees of children who follow their parents to Luxemburg. Furthermore, with a view to compensating any difference between the expatriate’s tax charge in Luxembourg and his/her home State, a tax equalisation process is applied.
The Circular stipulates that this expatriate regime is granted for a maximum duration of 5 tax years following the date at which the expatriate takes up work in Luxembourg. At the start of each year, the employer is required to communicate a list of such employees to the Tax Office.