Luxembourg Introduces New Tax Measures to Boost Talent Attraction and Retention

Luxembourg has recently unveiled a series of tax measures aimed at enhancing its appeal to skilled professionals and young talent. These changes, set to take effect in 2025, represent a significant overhaul of the country's approach to attracting and retaining high-caliber employees.

Modernized Impatriate Regime

The cornerstone of these reforms is the modernization of Luxembourg's impatriate regime. Starting in fiscal year 2025, eligible employees relocating to Luxembourg will benefit from a straightforward 50% tax exemption on their annual gross remuneration, up to €400,000. This simplification replaces the previous system of allowances, which was often perceived as complex and less competitive compared to other jurisdictions.

Key features of the new impatriate regime include:

- Availability for highly skilled employees hired from abroad or seconded from group companies

- Exemption applicable for up to eight years following entry into service in Luxembourg

- Minimum annual base remuneration requirement of €75,000

- Cap on beneficiaries at 30% of the company's workforce, with exceptions for newer enterprises

Increased Thresholds for Profit-Participating Bonuses

Luxembourg has also enhanced its profit-participating bonus regime, effective from fiscal year 2025:

- Individual employee bonus threshold increased from 25% to 30% of annual gross remuneration

- Overall bonus threshold raised from 5% to 7.5% of the employer's net profits from the preceding year

New Incentives for Young Employees

To attract young talent, Luxembourg has introduced two new measures:

1. Young Employee Bonus: Available from 2025, this offers a 75% tax exemption on bonuses for employees under 30, subject to specific conditions and limits.

2. Rental Allowance: Starting June 2024, employers can provide a partially tax-exempt monthly rental allowance of up to €1,000 for employees under 30, subject to certain income limits.

These measures reflect Luxembourg's commitment to maintaining its competitive edge in the global talent market. By simplifying existing regimes and introducing new incentives, particularly for younger workers, Luxembourg aims to solidify its position as an attractive destination for skilled professionals in Europe.

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