Measures intended by Finance Minister Gilles Roth to improve “talent attraction and retention” for Luxembourg firms were adopted without material changes by this country’s parliament shortly before Christmas. Now law, this legislation, which among several provisions, saves new arrivals 50 percent on their employment income taxation, will be effective in fiscal year 2025.
“Luxembourg needs talent to remain the go-to jurisdiction for business in Europe,” a Franz Kerger, tax partner at A&O Shearman, told Investment Officer. “The government’s move is bold and will not remain unnoticed.”
“I believe that simplifying the impatriate regime could be a game changer in attracting highly qualified profiles in Luxembourg,” said Xavier Martinez, a tax partner in KPMG Luxembourg’s global mobility services department.
50% tax-exempt
Newly arrived staff, called “impatriates” in the legislation, will now benefit from a 50 percent exemption on up to 400,000 euros of annual gross pay for up to nine years. Similar preferential tax regimes have been introduced in several other European countries.
“This is a significant tax incentive, which will encourage decision-makers to ‘make the move’,” said Kerger.
These initiatives join “other business-friendly initiatives taken by the government over the past few months,” he pointed out.
Finding staff not easy
“Finding suitable candidates for senior roles requiring a few years of prior professional experience is certainly not easy for certain firms,” said Christina Leomy-Voigt, a tax partner at ATOZ, a tax adviser present in Luxembourg, pointing to the small scale of the country and its labour market.
Many Luxembourg firms – fund managers, law firms, and audit and consulting firms – are competing for the same or very similar talent profiles, she explained.
“The greater region simply does not ‘produce’ enough talent that would fuel our growth and fill vacancies on the Luxembourg labour market,” said Gilles Dall’Agnol, an employment law partner at A&O Shearman.
Gone global
“While it was common to hire people from neighbouring countries before the Covid pandemic, many firms in Luxembourg are now attracting qualified professionals from around the world,” said Martinez.
“In order to attract qualified employees in the asset management industry and more broadly speaking in the financial sector, Luxembourg is competing with other global financial centers, such as London, Paris, Frankfurt,” Leomy-Voigt explained.
The new legislation will replace the existing regime, which allowed for costs related to an employee’s relocation to Luxembourg, to be fully or partially tax-exempt. That regime was capped at 30 percent of annual gross pay.
“The former ‘impatriate’ regime,” she explained, “was rather complex and only very few companies applied it in practice.”
Bonus thresholds increased
The relief package also increased the thresholds for the profit-participating bonus regime. Under the new law, an employee’s bonus can be tax-exempt at up to 30 percent of his or her annual gross pay, up from 25 percent in the previous thresholds.
Employees under 30 years old in their first permanent job will get a 75 percent exemption up to 100,000 euros in annual pay. Another measure aimed at under-30s allows employers to grant a monthly rental allowance of up to 1,000 euros, which will be 25 percent exempt.
The American Chamber of Commerce represents many US-based firms that have set up shop in the Grand Duchy. Paul Schonenberg, the organisation’s chairman and CEO, explained that the Amcham tax committee is still reviewing the finance minister’s proposal.
Lost high ground
“The good news is that the government has an increased awareness now than it has had for some reasonable period of time in the past about the challenges faced by business organizations and a realisation that Luxembourg has perhaps lost some of the high ground that it had,” he said.
Schonenberg emphasised without seeking to criticise the government, that he sees limits in the effectiveness of such measures, especially for junior staff.
“It’s not the highest subject on the list for more junior people,” he said. “It’s issues like education. It’s issues like affordability of housing.”
Dall’Agnol of A&O Shearman raised an interesting question: “How many foreigners do you know who planned to come to Luxembourg for 1-2 years and then stayed forever?”
“This is where the measures kick in – attract the talent and trust it will like it here.”