New profit-sharing bonus (“prime participative”) and new tax system for “impatriates”

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Date:
15 Mar 2021

Newsflash

By:
Dorothée David

The Law of 19 December 2020 on the budget for state revenue and expenditure for the 2021 financial year[1] (hereinafter the “Law”) stipulates that the following new provisions apply as of the 2021 tax year:

  • Profit-sharing bonus 

The Law creates a new article 115 number 13a L.I.R.[2], which introduces the option for employers to grant their employees a so-called “prime participative” (profit-sharing bonus) that can enjoy a 50% exemption from income tax.

The profit-sharing bonus depends on the profit that the employer has made for the previous trading year to the one for which the profit-sharing bonus is awarded to employees.

The profit-sharing bonus may enjoy a 50% exemption from income tax if the following conditions are met:

  • the employer must make a profit;
  • the employer must keep regular accounts for the tax year for which it awards the profit-sharing bonus, as well as for the year before that tax year;
  • the total value of the profit-sharing bonus that can be awarded to employees is limited to 5% of the profit generated during the trading year immediately preceding the year for which the profit-sharing premium is awarded to employees;
  • when it is awarded, the employer must send a list of the names of the employees benefiting from the profit-sharing bonus and the 50% exemption in the required format to the official representative from the relevant RTS tax office to verify the employer;
  • the employee receiving the bonus must be affiliated with a social security scheme;
  • the profit-sharing bonus does not exceed 25% of the total gross annual salary of the employee in question, excluding benefits in cash and in kind.

It is worth nothing that this system is entirely optional and that the choice and number of employees who will benefit from it is at the employer’s discretion.

For more information, please see (documents available in French):

  • New tax system for “impatriates” 

The Law stipulates that tax exemptions granted to employees referred to as “impatriates” (impatriés) as well as the conditions for applying this system are now defined in a new article 115 number 13b L.I.R., which may be specified in a Grand Ducal regulation.

This follows on from the abrogation, as of the 2021 tax year, of Circulaire L.I.R. no. 95/2 of 27 January 2014 on the tax system for expenses and fees relating to the recruitment from the international market of employees referred to as “impatriés” (“impatriates”) (see our Newsflash of 17 December 2020).

As a reminder, a transition period stipulated by Circulaire L.I.R. no. 95/2 of 14 December 2020 applies to “impatriates” who started working in Luxembourg between 2016 and 2020 inclusive.

 

 

[1] The law of 20 December 2020 on the budget for state revenue and expenditure for the 2021 financial year was published in Mémorial A no. 1061 on 23 December 2020, and came into force on 1 January 2021.

[2]   Modified law of 4 December 1967 on income tax.