LUXEMBOURG Law and Practice Contributed by: Michiel Boeren, Jeronimo Charvarria, Maxime Grosjean and Gauthier Mary, Tiberghien
For short-term assignments, Luxembourg generally follows the standard 183-day rule found in most tax treaties – ie, a non-resident working in Luxembourg for less than 183 days is generally not taxable there, pro - vided their salary is paid by a non-resident employer and not borne by a Luxembourg PE. For cross-border workers, specific bilateral treaties apply to commuters from neighbouring countries, establishing “tolerance thresholds” for remote work. Following recent amendments to all treaties with neighbouring countries (Belgium, France and Ger - many), these thresholds have been harmonised and increased to a uniform 34 days. This ensures a con - sistent tax framework for all cross-border employees working for a Luxembourg employer. If a cross-border worker works outside Luxembourg (eg, from home) for longer than these limits, the income corresponding to all days worked outside Luxembourg becomes taxable in their country of resi - For individuals, working remotely for more than 34 days triggers a split taxation status. Salary must be allocated between Luxembourg (for days physically worked there) and the country of residence (for remote working days), necessitating payroll adjustments and potentially incurring a tax liability in the country of residence. A non-resident company faces a PE risk if its employ - ees work remotely from Luxembourg. While occasion - al remote work is generally tolerated, if home working becomes habitual or involves concluding contracts or managerial roles, it may trigger corporate tax liability for the foreign employer in Luxembourg. Incentives Luxembourg offers several attractive frameworks to optimise remuneration for individuals. • Inpatriate regime: qualifying new resident employ - ees can benefit from tax exemptions on 50% of their gross annual remuneration (applicable up to a maximum eligible remuneration base of dence, rather than in Luxembourg. Consequences of Remote Working
EUR400,000), provided they meet certain condi - tions. • Profit-sharing bonus: employees may receive a portion of company profits with a 50% tax exemp - tion, up to certain thresholds (increased to 30% of the employee’s gross annual salary as of 2025). • Young professional bonus: a new support meas - ure providing a 75% tax exemption on a specific employer-granted bonus. It is available for young employees under the age of 30 (on 1 January of the tax year) who are signing their first permanent employment contract (CDI) in Luxembourg. 3.6 Other Income Carried Interest Luxembourg has recently modernised its tax regime for carried interest for investment fund managers. Qualifying carried interest derived by resident indi - vidual taxpayers is either subject to tax at a highly preferential rate of one quarter of the standard rate (up to approximately 11.45%) or exempt, depending on the type of carried interest and whether specific conditions are met. Directors’ Fees Luxembourg applies a flat withholding tax of 20% on the gross amount paid to non-resident directors. This tax is final only if the director’s gross fees do not exceed EUR100,000 per year and the director derives no other professional income in Luxembourg. Although the OECD Model (Article 16) allocates tax - ing rights to the company’s residence state, Luxem - bourg’s use of a flat withholding tax makes compli - ance easier than the standard assessment process. Intellectual Property Luxembourg offers a specific tax regime for qualifying intellectual property assets (such as patents and cop - yrighted software). Under this regime, up to 80% of the net income, including capital gains, derived from eligible IP assets is exempt from income tax, resulting in an effective tax rate of approximately 4.8%. This benefit is strictly linked to the “nexus approach” (Action 5 of the OECD BEPS Project), meaning the exemption only applies to income proportionate to the qualifying R&D expenditure actually incurred by the
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