MY HR UPDATE. Actualité RH au Luxembourg ! Octobre 2024

Cars ordered in 2024 but delivered in 2025, as well as vehicles already in circulation, will escape this reform. For all other vehicles, the benefit in kind applied to the gross price of the vehicle (including options and after deductions) will henceforth range between 1%, 1.2%, and 2%.

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2. PASRAU (withholding at source for other income) declaration in France: Deadline approaching!

Déclaration PASRAU en France, la date limite approche pour les entreprises !

If your employees residing in France have exceeded the tax threshold of 34 days of work outside of Luxembourg, as their employer you are required to declare their taxable income in France to the French tax authorities once a year. The deadline for 2023 income is 31 December 2024.

If the tax thresholds are exceeded, the salary for all days worked outside Luxembourg is in principle taxable in the employee’s country of residence. Only the days worked in Luxembourg will be taxed in Luxembourg. Consequently, it is necessary to adjust the payroll to exempt Luxembourgish taxes for the days worked outside of Luxembourg.

The process does not stop there for French cross-border workers. The Luxembourgish employer must in fact declare, once a year, the taxable income in France of employees who have exceeded the tax threshold to the French authorities. Known as PASRAU (withholding at source for other income) this annual declaration entails obtaining a SIRET (unique identification for businesses and organisations) number in France first and applies only to employees who remain under Luxembourgish social security.

For their part, French residents are responsible for paying tax on income from remote work and will be subject to a monthly tax advance once they have completed the necessary steps online in their personal DGFIP [General Directorate of Public Finances] account.

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3. Have you thought about updating your employment contract templates?

Avez-vous pensé à modifier vos modèles de contrat de travail ?

As you know, Luxembourg transposed Directive (EU) 2019/1152 on transparent and predictable working conditions in the European Union through the Act 24 July 2024, which came into force on 4 August. This Act has modified the mandatory terms of the employment contract, requiring companies to revise their templates for future hires.

The following employment contract clauses need to be reviewed and, if necessary, amended:

Place of work: The parties to the employment contract may agree that the employee can determine their place of work. In such a case, this must be stipulated in the employment contract.

Overtime and its conditions: The employment contract must henceforth define the cases in which overtime may be worked, while complying with the very restrictive legal framework on this issue. Furthermore, any conditions related to team changes must also be indicated.

Remuneration: A clear distinction must be drawn between basic salary and salary supplements, whereby the frequency and payment methods are also specified. All salary supplements must be detailed separately from the base salary, including bonuses, gratuities, benefits in kind, etc.

Contract termination: In addition to referring to periods of notice, the procedure to follow in case of termination must henceforth also be spelled out, including the formal requirements and the deadline for filing a challenge against the termination.

Trial period: The conditions for applying the trial period must be indicated , especially the period of notice in case either party wishes to terminate the employment relationship before the end of the trial period, the circumstances that extend it, etc.

New clauses must moreover be included in employment contracts:

Right to training: If training is provided by the employer, it must be included in the contract so as to inform the employee of the number of training days that he or she is entitled to per year, as well as the general terms and conditions of the training policy.

Social security organisation: The identity of the social security organisation will henceforth need to be mentioned in employment contracts.

Finally, as a matter of principle, exclusivity clauses are henceforth null and void. This refers to clauses that prohibit an employee from engaging in another employment relationship outside of regular working hours.

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4. New developments for the trial period for fixed-term contracts

The trial periods for fixed-term now follow their own rules, separate from those of open-ended permanent contracts! A new principle has been established: the maximum applicable trial period cannot exceed one-quarter of the term of the contract.

The Labour Code had hitherto applied the same regulations for trial periods in both fixed-term and open-ended contracts, making it legally possible in some cases to have the fixed-term contract covered by a trail period for its entire term, which did not make sense.

The new legislation stipulates that the trial period must henceforth be proportional to the term of the contract. Thus, the new Article L.122-11 (1) of the Labour Code now states that the trial period cannot be less than two weeks or more than a quarter of the fixed or minimum term of the fixed-term contract.

*Alternatively, a trial period of four weeks is permitted. In such a case, the period of notice will be four days.
** Maximum trial period for an employee whose education level is below the Certificate of Technical and Professional Aptitude.

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5. Rent bonus: New tax-exempt bonus

La prime locative : la nouvelle prime défiscalisée

As of the 1st of last June, employers have had another way to attract young talent through a new tax-exempt incentive! The latest addition to Article 115 of the Income Tax Act is the rental bonus!

In practice, employers can henceforth pay a monthly bonus to a young employee who rents his or her primary residence.

However, certain conditions must be met in order to benefit from this bonus:

The amount of the bonus is limited to the rent paid by the employee, exclusive of charges;

The bonus is capped at €1,000 per month;

The tax exemption applies to 25% of the amount of the bonus;

The employee must be under 30 years old at the beginning of the tax year;

The gross annual salary, excluding the rental bonus, must not exceed 30 times the qualified social minimum wage, currently €92,553.30 (index 944.43). In the case of an incomplete year, the employer shall be required to extrapolate the salary to a full year so as to verify this threshold.

Furthermore, in cases of part-time employment or incomplete months based on hours declared to the Joint Social Security Center (CCSS), the bonus cap must be prorated.

It is important to note that it is the employer’s responsibility to verify that the conditions for the tax exemption are met before the bonus is paid.

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6. Tax reform 2025

On the 17th of last July, Minister for Finance Gilles Roth announced a comprehensive tax reform aimed at strengthening the purchasing power of employees and the competitiveness of Luxembourg. A bill (No. 8414) has already been brought before Parliament. The main changes are:

Adjustment of the tax scale for natural persons: The bill proposes an adjustment of 2.5 indexed tax brackets. In practical terms, this means a tax relief for all employees!

Additional tax relief for Tax Class 1a:
- First of all, the bill provides for a significant adjustment of the tax rate for Class 1a to reduce the tax burden for this class so as to fall closer into line with Class 2.
- Similarly, in order to ease the burden on single-parent households, the bill proposes increasing the single-parent tax credit, which can now reach up to €3,504 (compared with €2,505 currently).

Elimination of the tax burden for employees earning the unqualified social minimum wage (currently €2,570.93) through an increase in the minimum wage tax credit, with the maximum amount increasing from €70 to €81.

Strengthening of the participative bonus scheme: The bill introduces two major changes:
- One of the conditions for the payment of this bonus is that it must not exceed 25% of the employee’s gross annual salary (before incorporating benefits in cash and in kind) in the year the bonus is awarded. The bill proposes increasing this cap to 30%.
- Moreover, the total amount of participative bonuses that an employer can grant to employees is currently limited to 5% of the company’s previous year’s positive operating results. The bill proposes increasing this percentage to 7.5%.

Modernisation of the impatriate tax regime: This regime had up to now offered a range of various exemptions based on actual expenses, as well as an impatriation bonus that employers could freely choose from. The new model introduces a flat-rate system characterized by:
- a 50% tax exemption on the gross amount of the total annual salary,
- while capping the annual salary eligible for this exemption at €400,000.

New “young employee” bonus: Employers will be able to give a bonus, 75% of which will be exempted from taxes, to young employees at the start of their careers. The bonus amount can vary between €5,000 and €2,500, depending on the employee’s gross annual salary. This bonus can be paid once a year for up to 5 years.

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7. New procedure for obtaining registration numbers for non-EU nationals

Nouvelle procédure pour obtenir les matricules des ressortissants hors UE

Are you about to hire a non-EU, non-EEA, or non-Swiss national? Be aware, the rules have changed!

Before hiring, it is imperative to verify that the national in question holds a valid residence or work permit and/or has his or her registration number (social security number). Without a registration number, the declaration cannot be entered in the Joint Social Security Centre (CCSS).

Since 1 July 2024, it is the Directorate General of Immigration, under the Ministry of Foreign Affairs, that issues social security numbers to third-country nationals, not the Joint Social Security Centre. This applies to both employees and trainees.

Two scenarios emerge:

Either the third-country national needs a work permit (or equivalent document) to work or reside in Luxembourg: the registration number will be assigned during the procedures carried out with the Ministry of Foreign Affairs to obtain the document.

Or the third-country national does not need a work permit (or equivalent document) to work or reside in Luxembourg, he or she must submit a specific request to the Directorate General of Immigration, providing documents that prove his or her status (passport, employment contract, residence permit, etc.). For example, this applies to a young student from a third country residing in a neighbouring country who wishes to do an internship in Luxembourg as part of his or her studies. Even if a work permit is not necessary, only the Ministry of Foreign Affairs can issue the registration number.

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8. Salary indexation

Do you want to know when the next salary indexation will take place? Here is the information available at this time.

Salary indexation is triggered one month after the six-month average of the index shows a 2.5% difference compared to the last reference figure. The six-month average, calculated monthly, corresponds to the average of the general indices for the last six available months.

The six-month average increased from 1,011.17 points in July to 1,012.12 points in August. The next indexation will therefore be applied when the value reaches 1,013.46 points.

Even though the difference between these two values is only 0.13%, it seems unlikely that the index will be triggered in November. In fact, the annual inflation rate would have to exceed 1.63% again in October and November 2024 for the indexation to be triggered in November and applied in December.

An update to inflation forecasts will be published on 6 November on the STATEC website, but a first estimate of the annual inflation rate, prepared by the Index Commission, will be published on 31 October 2024.

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9. Occupational accident: Launch of electronic declaration via MyGuichet.lu

Accident du travail : lancement de la déclaration électronique via MyGuichet.lu

All employers must report occupational or commuting accidents in which their employees are involved to the Accident Insurance Association (AAA). This can now be done electronically via MyGuichet.lu.

Since 30 September 2024, the Accident Insurance Association has offered the option of declaring occupational or commuting accidents electronically through the MyGuichet.lu platform. Paper declarations are still possible.

Additionally, the Inspectorate of Labour and Mines (ITM) must also be informed using the form available on its website, which should be signed and sent by email to accidents@itm.etat.lu or by post to their address. This information must be transmitted immediately in the case of a serious accident, and as soon as possible in other cases.

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