Luxembourg’s Finance Minister, Gilles Roth, has outlined plans to reform the country’s profit-sharing bonus regime and expat tax policies to enhance its attractiveness to international talent.
In an interview with the in-house magazine of the Luxembourg Private Equity Association, Roth emphasized the importance of these measures in ensuring the country’s continued competitiveness in the global financial sector.
«As Finance Minister, I am committed to further improving both the regime of profit-sharing bonuses as well as the expat tax regime to support companies in attracting and retaining the highly skilled talent they need,» Roth said.
Read more: LPEA interview with Gilles Roth
Under current rules, Luxembourg offers a tax regime for employee bonuses tied to an employer’s annual results. These bonuses enjoy a 50 percent exemption from the employee’s Luxembourg personal income tax, while remaining fully tax-deductible for employers as operational expenses. However, the tax break is capped at 25 percent of an employee’s annual gross remuneration. The total amount of bonuses granted under this regime cannot exceed 5 percent of the company’s prior year’s annual result.
Pressure
Roth’s comments come as Luxembourg faces increasing pressure to maintain its position as a leading financial hub amid evolving global economic conditions and regulatory changes.
The government’s move to reform these regimes aims to provide a more competitive edge in the race for talent, which has become a pressing issue for financial centres worldwide. Luxembourg’s appeal as a destination for finance professionals has traditionally hinged on its favourable regulatory environment, multilingual workforce, and robust ecosystem of service providers. However, competition from other European hubs like Dublin and Frankfurt has intensified, and firms are finding it increasingly challenging to recruit and retain top talent.
Global challenge
Roth acknowledged that access to skilled workers is now a global challenge, with highly sought-after professionals often having multiple career options, including opportunities in tech and other dynamic sectors. He noted that Luxembourg’s tax incentives would play a crucial role in addressing this issue. The planned improvements to profit-sharing bonuses and the expat tax regime are expected to provide substantial benefits, especially for highly skilled international employees who contribute to Luxembourg’s growth in sectors such as private equity, corporate banking, and digital assets.
Alternative investments
The Finance Minister’s remarks are part of a broader push to modernize Luxembourg’s financial sector legislation and ensure the country remains a top destination for alternative investments. Roth has already initiated several measures since taking office in November 2023, including adjusting the income tax scale, launching a sustainable finance action plan, and proposing a reduction in the corporate tax rate to align with OECD norms.
Furthermore, Roth highlighted ongoing efforts to bolster the financial sector’s growth in emerging areas like digital assets and sustainable finance. Luxembourg has made strides in becoming a hub for asset tokenization and digital bond issuance, leveraging its pioneering blockchain laws to attract global players. As part of the government’s commitment to sustainable finance, Roth also underscored the role of private capital in advancing the green transition, noting that assets under management in ESG funds now account for 67 percent of Luxembourg’s Ucits assets.
Further reading on Investment Officer Luxembourg:
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