New tax circular on impatriate workers
On 21 May 2013, the Luxembourg Tax Authorities published a circular (L.I.R. n° 95/2 of 21 May 2013) regarding the tax regime applicable to impatriate workers ('the Circular').
This Circular applies retroactively as from 1 January 2013 and replaces circular n° 95/2 of 31 December 2010 (our newsletter issue 2010-18). Specific tax provisions will apply in Luxembourg to impatriate workers relocating to Luxembourg as of 1 January 2013. These provisions aim at exempting part of impatriate workers' remuneration and expenses in relation with their impatriation to Luxembourg.
The aim of the Circular is to attract foreign workers to Luxembourg to respond to a need for skill and labor. Hence, an impatriate is a foreign worker in Luxembourg.
As for persons covered, the Circular applies to:
- Employees usually working abroad, assigned by a company located outside of Luxembourg to perform an employment activity in a Luxembourg company, member of the same international group (i.e. companies financially linked and incorporated in at least two other countries); and
- Employees hired abroad by a Luxembourg company to perform an employment activity in that company.
The following conditions should be met at the level of the impatriate:
- He must fulfill the criteria of a tax resident;
- He must neither have been a Luxembourg tax resident nor have been living less than 150 km from the Luxembourg border, nor have been subject to personal income tax on his professional income during the 5 years preceding the starting date of his professional activities in Luxembourg.
The following conditions should be met at the level of the employer:
- The employer must at least employ 20 full-time employees on a medium term.
- The assigned employee should have been employed in the international group since 5 years or have a 5 years professional experience in a similar activity;
- A working relationship must exist between the home company and the employee during the period of assignment;
- The assignment must foresee a guarantee for the return of the employee in the home company;
- An assignment contract should be signed between the home company and the Luxembourg company.
- The employee must have acquired a strong specialization in a sector or a profession characterized by recruitment difficulties in Luxembourg.
- The number of impatriate workers in the company should be limited to 30% of the total number of employees, except for companies implemented in Luxembourg since less than 10 years.
- The activity performed by the impatriate worker should be his main activity;
- The annual fixed remuneration (excluding benefits in kind and in cash) of the employee should at least amount to EUR 50,000;
- The impatriate worker should not replace any employee not covered by the Circular;
- The skills and knowledge of the impatriate worker should benefit the local employees in the framework of the development of the prospective activities in Luxembourg.
Assignment costs typically represent a heavy financial burden to employers. Thus, the principle of the Circular is the exemption of the part of relocation expenses that exceed those that would have applied had he remained in his home country.
- Removal expenses (to Luxembourg);
- Furnishing and housing equipment cost;
- Special travel costs (e.g. birth, wedding, death of a family member);
- Repatriation expenses (back to home country).
- Housing expenses in Luxembourg, provided that the employee maintains his house in his home country (e.g. rent, utilities, property tax, …);
- Yearly travel expenses between Luxembourg and the home country (for the employee, spouse or partner and the children of his household);
- Tax equalization expenses.
In any case, these recurring expenses cannot exceed EUR 50,000 (EUR 80,000 when the employee shares a house with his spouse or partner) per year, neither 30% of the impatriate worker's total annual fix remuneration.
Are also tax exempt, the school fees borne by the employer for the imaptriate worker’s children, if the children move with their parent(s).
This lump sum covers the cost of living adjustment (COLA) and is fixed at 8% of the employee's fixed monthly remuneration, capped at EUR 1,500. The lump sum can be doubled (i.e. 16% capped to EUR 3,000) where the employee shares a house with a spouse or partner who does not perform any professional activity.
At the level of the Luxembourg employer, the aforementioned expenses are considered tax deductible. Expenses borne by the employer for impatriate workers are not considered 'income from employment' in the sense of Article 95 of the Luxembourg Income Tax Law (LIR).
Any allowance or benefit in kind which is not covered by the Circular remains subject to Luxembourg common tax rules (Article 104 LIR and related tax circulars).
The benefit of the specific tax provisions for impatriate workers is granted for the duration of his impatriation. It applies until the end of the 5th tax year following the impatriate’s starting date in Luxembourg.
At the beginning of each year (by 31 January at the latest), the employer is required to provide the Tax Authorities with a nominative list of employees covered by this measure.
The provisions of the Circular will apply to impatriate workers relocating to Luxembourg as from 1 January 2013.
The Circular offers great opportunities to increase international assignment and design new assignment policies for international groups. In this regard, KPMG provides all the necessary assistance you may require to utilize the provisions of the Circular in the most efficient manner.
For further information, please do not hesitate to contact us.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.