The government on Wednesday announced a new expatriation bonus to attract staff from outside Luxembourg after abolishing a tax-saving stock options regime.
The soon to be obsolete regime had allowed companies to pay part of an employee’s salary through stock options, which are taxed at a much lower rate than the highest 42% income tax bracket.
But while prime minister Xavier Bettel (DP) on Tuesday announced that the scheme would be abolished starting next year, his government already has a replacement at the ready in the form of an expatriation bonus.
The bonus would be limited to a period of eight years and capped at 30% of the employee’s salary. It would be 50% tax free, finance minister Pierre Gramegna said on Wednesday while presenting the 2021 budget.
A similar scheme exists in France where the bonus is entirely tax free. It is aimed strictly at executive and senior level hires or staff with special responsibilities. It can be paid only to people who have not been resident in France for at least five years prior to taking up their job. Luxembourg added a criteria that the beneficiary of the bonus cannot have lived within 150km of the grand duchy’s border.
The scheme is aimed at helping Luxembourg companies attract highly qualified staff, which is proving a challenge in domains like ICT. A 2018 Eurostat report listed the grand duchy among the top five countries in the EU struggling to recruit ICT specialists.
Out of 20 staff needed for a European supercomputer to become operational in Luxembourg next year, for example, only five were close to signing a contract when the project was presented during a press conference in September.
The “prime d’impatriation” would provide a solid legal basis and reform of provisions currently regulated under a circular from the tax administration, Gramegna said. It would continue allowing companies to pay for up to €50,000 annually (€80,000 for couples) in extra costs tax free--such as moving, housing and school fees--in addition to the salary.
The government also presented plans for what it calls a participatory bonus by which the company can share up to 5% of its profits across employees. But the amount cannot exceed 25% of the individual’s salary with 50% of the bonus tax free.
Both bonuses would be voted into law in conjunction with the 2021 budget.