Hiring a senior professional into Luxembourg is rarely a purely domestic exercise. Fund managers, management companies and group platforms recruit across borders, and the net value of a Luxembourg package is benchmarked against other financial centres before a candidate signs. The impatriate regime rewritten with effect from 1 January 2025 changes the income-tax treatment of qualifying inbound employees.
The mechanism is flat. Half of the eligible gross remuneration, on a base capped at EUR 400,000 per year, is exempt from income tax until the end of the eighth tax year following entry into service in Luxembourg.1 The rewrite replaced the cost-reimbursement logic of the previous framework. It is separate from the carried interest regime, which addresses a different income stream under its own statutory conditions.
For the employer, the regime is above all an execution subject. Eligibility must be verified before an offer letter refers to the measure, the exemption must be applied correctly in payroll, and a nominative list must reach the tax office every year. The sections below follow that operational sequence.
1. What changed on 1 January 2025
The former framework, codified in Article 115, number 13b of the Luxembourg income tax law, exempted certain relocation and housing costs and an impatriation premium subject to statutory limits. Its application required expense tracking and a benefit-by-benefit analysis.
The law of 20 December 2024 kept the article number and replaced those mechanics.1 From tax year 2025, the regime applies a 50% exemption to the eligible gross annual remuneration within one annual cap. The measure changes the employee’s income-tax base without changing the contractual gross remuneration.
2. The 50% exemption and the EUR 400,000 cap
The exemption covers 50% of the eligible gross annual remuneration. The base excludes all benefits in kind and the cash benefits listed in Article 115, number 13b LIR, including their full amount where they are only partly exempt under another provision. The remuneration taken into account is capped at EUR 400,000 per year, which places the maximum exempt amount at EUR 200,000 per tax year. Remuneration above the cap is taxed under the ordinary rules.
The exemption is an income-tax measure. It does not by itself remove remuneration from the social-security contribution base; ordinary CCSS rules, classifications and ceilings continue to apply.2 In the wage-tax computation, the employee social contributions relating to the exempt portion are not deductible.
Where the employer is required to operate Luxembourg wage withholding, the exemption is reflected in payroll. If a non-resident employer is not required to withhold and does not do so voluntarily, the statute provides for taxation by assessment instead.1
3. Who qualifies
The statutory conditions are cumulative.1
- The employee has a Luxembourg tax domicile or habitual residence.
- During the five tax years preceding entry into service in Luxembourg, the employee was not tax-domiciled in Luxembourg, did not live within 150 km of the border and was not subject there to personal income tax on professional income.
- The qualifying activity represents at least 75% of working time.
- Fixed annual gross remuneration reaches at least EUR 75,000 before cash and in-kind benefits.
- The employee does not replace one or more non-impatriate employees.
- The employee is either directly recruited abroad for work in the Luxembourg business or seconded from a foreign entity of the same international group. Temporary-agency contracts and employee-leasing arrangements are excluded.
The two entry routes carry further conditions. A direct recruit must have acquired in-depth specialisation in the relevant sector. A secondee must have at least five years’ seniority in the international group or five years’ specialist experience in the sector; the employment relationship with the sending entity must continue, a return right must exist and the sending and Luxembourg entities must have a secondment agreement.
The number of eligible impatriates may not exceed 30% of the Luxembourg business’s total workforce, with part-time employees counted proportionally. This condition is waived for a business that has existed for less than ten years on 1 January of the current calendar year. The five-year lookback and the workforce ratio are factual tests that require supporting records.
4. Duration and the events that end the regime early
The exemption applies during the assignment, at the latest until the end of the eighth tax year following the year of entry into service in Luxembourg. Within that window, the conditions are continuous rather than tested once. Fixed remuneration falling below EUR 75,000, the qualifying activity dropping below 75% of working time, or a change in the recruitment, secondment or employer conditions can end the exemption earlier.
The annual reporting cycle provides a regular checkpoint for the salary level, working-time allocation, employment terms, workforce ratio and supporting evidence.
5. Payroll execution and the employer’s annual list
The exemption enters the wage-withholding computation where the employer operates Luxembourg payroll. All benefits in kind remain outside the eligible base, while cash remuneration is monitored against the annual cap. The rhythm of declarations and payments follows the ordinary employer payroll calendar.
One obligation is specific to the regime. Under Article 115, number 13b LIR, the employer must send the competent tax office by 31 January of tax year N a nominative list of the employees who benefited from the regime during year N-1.3 The statutory tests underlying that list concern prior residence, employment or secondment status, fixed remuneration, working-time allocation and the workforce ratio where relevant.
This date should not be confused with the deadline for the separate profit-sharing bonus regime under Article 115, number 13a LIR. A law published in December 2025 moved that regime’s nominative list to before 1 March of year N+1 from tax year 2025; it did not amend the annual impatriate-list deadline in number 13b.4
6. Transition from the pre-2025 regime
Employees who benefited from the former cost-based regime through tax year 2024 can remain under those rules for later tax years while the relevant conditions continue to be met. They may expressly elect the flat exemption through the employer’s annual communication to the tax administration. The election is irrevocable from the tax year in which it is exercised.5 Employees entering service from 2025 onwards can access only the new regime.
For employers, the practical consequence is a period of coexistence. A payroll may carry beneficiaries of two different impatriate frameworks with different mechanics, and each population must be treated under its own rules until the older one extinguishes itself.
7. Fitting the regime into a relocation package
For fund-management teams, the impatriate exemption and the carried interest regime remain separate measures. The same individual may fall within each regime only if the respective statutory conditions are independently met. For a first Luxembourg office, the regime also sits within the broader first-employee sequence, from social-security registration to wage-tax setup. The beneficiary’s personal tax compliance must remain consistent with the payroll treatment.
Conclusion
Eligibility depends cumulatively on residence history, fixed remuneration, working-time allocation, the recruitment or secondment route, the workforce ratio and the other statutory conditions. The payroll exemption applies only while those conditions remain satisfied, alongside the employer’s annual reporting duty.
Footnotes
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Article 115, number 13b of the amended Law of 4 December 1967 on income tax, as rewritten by the Law of 20 December 2024, published in Mémorial A No 589 of 23 December 2024; see the tax administration’s coordinated income tax law. ↩ ↩2 ↩3 ↩4
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The CCSS explains the ordinary rules governing remuneration subject to contributions and the applicable contribution bases. ↩
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Article 115, number 13b of the tax administration’s coordinated income tax law in force from 1 January 2026, updated on 8 May 2026, and the administration’s fiscal calendar, updated on 26 June 2026, both retain the 31 January deadline for the impatriate list. ↩
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The Law of 19 December 2025, published in Mémorial A No 614 of 22 December 2025, amended the reporting procedure for the separate profit-sharing bonus under Article 115, number 13a LIR from tax year 2025. ↩
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Article 115, number 13b, final paragraph of the tax administration’s coordinated income tax law in force from 1 January 2026, updated on 8 May 2026, preserves the former regime for existing beneficiaries and provides for an irrevocable election into the version applicable from tax year 2025 through the employer communication. ↩
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Frequently Asked Questions
Who qualifies for the Luxembourg impatriate regime?
The conditions are cumulative. The employee must become a Luxembourg tax resident, perform the qualifying activity for at least 75% of working time, receive fixed annual gross remuneration of at least EUR 75,000 before cash and in-kind benefits, and not replace a non-impatriate employee. During the preceding five tax years, the employee must not have been tax-domiciled in Luxembourg, lived within 150 km of the border or been taxed there on professional income. Additional conditions apply to direct recruits and intra-group secondees, and temporary-agency or employee-leasing arrangements are excluded.
How large is the exemption?
Half of the eligible gross annual remuneration is exempt from income tax. The remuneration base is capped at EUR 400,000 per year, so the exempt amount cannot exceed EUR 200,000 per tax year. All benefits in kind and the cash benefits specifically excluded by Article 115, number 13b LIR fall outside that base. The income-tax exemption does not itself reduce the social-security contribution base; ordinary CCSS rules and ceilings continue to apply.
What must the employer do in payroll?
Where the employer operates Luxembourg wage withholding, the exemption enters the payroll computation. Payroll must exclude all benefits in kind and the specified exempt cash benefits from the eligible base, apply the annual cap, treat employee social contributions relating to the exempt portion as non-deductible in the wage-tax computation, and retain the eligibility evidence. Under Article 115, number 13b LIR, the employer reports by 31 January of year N the employees who benefited during year N-1. This deadline is distinct from the deadline before 1 March for the separate profit-sharing bonus regime under Article 115, number 13a LIR. A non-resident employer not required to withhold and not doing so voluntarily is subject to the statutory assessment exception.
What happens to employees who were under the pre-2025 regime?
Employees who benefited from the former cost-based regime through tax year 2024 can remain under those rules for later tax years while the relevant conditions continue to be met. They may expressly elect the flat exemption through the employer's annual communication to the tax administration; the election is irrevocable from the tax year in which it is exercised. Employees entering service from 2025 onwards fall under the new regime only.
