Luxembourg has long been an attractive destination for expatriates due to its high quality of life, strong economy, and international business environment. One of the key factors contributing to its appeal is the Special Tax Regime, designed to lure top talent to the country.
How does it work?
The Special Tax Regime offers significant tax advantages to eligible expatriates employed in Luxembourg. Instead of the standard progressive tax rates that can climb as high as 45%, qualifying individuals enjoy a flat tax rate of 20% on their Luxembourg-sourced income. To sweeten the pot, there’s also a cap on the taxable income, further reducing the overall tax burden.
Who qualifies?
Not everyone can take advantage of this tax perk. To be eligible, you must meet the following criteria:
- Employment: Employed by a Luxembourg-based company with a registered economic activity.
- Recruitment: Hired from outside Luxembourg or have spent at least two years working abroad for the same employer.
- Residency: Not been a Luxembourg tax resident in the past five years.
- Salary: Earn a gross annual salary exceeding €75,000 (a recent reduction from €100,000).
- Origin: Be recruited from a non-EU country.
Temporary benefit
It’s important to note that this tax regime is a temporary arrangement. You can enjoy its benefits for a maximum of five years. After that, you’ll transition to the standard Luxembourg tax system.
Is it worth it?
The Special Tax Regime can be a game-changer for high-earning professionals looking to relocate to Luxembourg. The potential tax savings are substantial. However, it’s essential to weigh these benefits against other factors such as cost of living, career opportunities, and personal preferences.
