Luxembourg Enhances Expatriate Tax Regime for 2025

Luxembourg is set to make a significant update to its inpatriate tax regime, which will take effect on January 1, 2025. Originally introduced in 2011, this tax relief initiative has now been revamped to provide even greater benefits for eligible employees moving to Luxembourg for work.

The core eligibility conditions for the regime remain similar, but there are important adjustments to the tax exemptions, making it more advantageous and simpler for workers to benefit from.

Here’s what you need to know:

• Residency Requirement: To qualify for the inpatriate tax regime, individuals must become residents under Luxembourg’s tax laws.

• Eligibility Timeframe: Employees must not have been Luxembourg tax residents or lived within a 150 km radius of the border in the five years before their relocation.

• Minimum Salary: Applicants must earn an annual base salary of at least EUR 75,000 to be eligible.

One of the most notable changes in the updated regime is the increase in the tax exemption. Now, 50% of an employee’s total annual compensation (excluding certain benefits and tax-exempt items) will be exempt from taxation. However, the total tax-free amount is capped at EUR 200,000, based on a maximum qualifying salary of EUR 400,000. This exemption can be applied for up to eight years, providing significant tax savings over an extended period.

The revised regime applies to both international assignees and local hires, with additional stipulations for companies that have been operating in Luxembourg for over a decade, limiting the number of employees who can use this tax benefit to 30%.

If you were already benefiting from the prior regime, you can opt into the new version without needing to submit an application, though annual reporting to the tax authorities remains a requirement.

This updated tax incentive is designed to attract highly skilled professionals to Luxembourg, offering them a unique financial advantage as they establish their careers in the country.