Impatriate Tax Regime for Foreign Executives in Luxembourg

1. Legal framework: old regime vs. new 2024 regime

The Luxembourg impatriate regime has undergone a major overhaul. It existed for decades as an administrative tolerance granted by the Administration des contributions directes (ACD) on the basis of internal circulars. This practice allowed the exemption of certain components of an expat package but lacked a formal statutory basis.

The new regime (Law of 22 December 2023)

The budget law of 22 December 2023 codified and reformed this arrangement with effect from 1 January 2024. The statutory regime:

• sets precise eligibility conditions (salary threshold, prior non-residence);
• rigorously defines the exempt components of remuneration;
• sets a maximum duration of 8 years;
• assigns the ACD responsibility for eligibility checks via a mandatory annual employer declaration.

Summary comparison

2. Eligibility conditions (4 cumulative criteria)

3. Nature and scope of the tax benefit

What is exempt: expatriation costs, not the salary

This is the most commonly misunderstood point: the impatriate regime does not exempt the base salary. It allows the tax exemption of specific components directly linked to the expatriation, paid in addition to salary:

• Inpatriation premium: a lump-sum allowance paid to compensate for the constraints of an international move;
• Relocation costs: actual documented costs of moving to Luxembourg;
• Housing costs: employer's contribution to temporary or permanent housing;
• School fees: tuition fees for children at international or private schools.

Exemption cap

The exempt inpatriation premium is capped at 50% of the annual contractual gross fixed salary. Any excess above this cap is taxable under ordinary rules. Documented expenses (relocation, housing, schooling) are added within the limits of their actual and evidenced character.

Maximum duration

The benefit is granted for a maximum of 8 years from the employee's Luxembourg start date. After this period expires, the entire remuneration (including the inpatriation premium) becomes fully taxable under ordinary rules.

4. Employer obligations

Annual declaration to the ACD

The employer is required to communicate each year to the Administration des contributions directes (ACD) a complete list of employees benefiting from the impatriate regime. This declaration enables the ACD to verify that eligibility conditions remain met for each beneficiary.

Failure to file this annual declaration may result in the retrospective withdrawal of the tax benefit from the employee, with a tax reassessment and penalties.

Initial approval procedure

For each new eligible employee, the employer must:

1. Compile a supporting file (employment contract, evidence of prior non-residence, employee's qualifications);
2. Submit this file to the ACD for validation;
3. Wait for confirmation before applying the exemption on payslips.

Retention of supporting documents

The employer must retain evidence for all exempt expenses (removal invoices, rent receipts, school invoices) for the statutory retention period. These must be produced on ACD request during a tax audit.

5. Alternative: tax assimilation for non-residents

For non-resident employees who earn most of their income in Luxembourg but do not meet the conditions for the impatriate regime, tax assimilation is an option allowing access to certain tax benefits reserved for residents.

Eligibility for assimilation

Assimilation is available to a non-resident who meets one of the following conditions:

• 90% rule: at least 90% of their worldwide taxable income arises in Luxembourg (50% for Belgian residents, under the Belgium–Luxembourg tax treaty);
• €13,000 rule: their net annual foreign income is below €13,000.

Benefits of assimilation

An assimilated non-resident can benefit from:

• the same tax deductions as residents (special expenses, family charges, child deductions);
• tax class 2 (married persons or equivalents), on the same terms as residents;
• the tax credits available to Luxembourg residents.

Procedure

The request is made via the income tax return (form 100) filed with the ACD. The non-resident must declare all worldwide income, even income taxable abroad, so that the ACD can verify compliance with the assimilation thresholds.

6. Practical interactions and limits

CCSS social contributions: fiscal regime ≠ social regime

The impatriate regime is a purely tax measure. It has no effect on social contributions owed in Luxembourg:

• CCSS contributions (health, pension, dependency) remain calculated on the total remuneration, including the inpatriation premium and tax-exempt costs;
• The tax exemption therefore does not reduce the cotisable salary base.

Directly recruited vs. posted employee

Cross-border workers: not eligible

Cross-border workers (residents of France, Belgium or Germany) cannot benefit from the impatriate regime because Luxembourg tax residence is a prerequisite. They may however access tax assimilation if the threshold conditions are met.

Interaction with a supplementary pension scheme (RCP)

An impatriate may simultaneously be enrolled in a supplementary pension scheme (RCP). Employee RCP contributions remain deductible (Art. 111bis LIR, €1,200/year) independently of the impatriate regime. The two arrangements are cumulative.