Here you will find all the latest news about HR management in Luxembourg!
- Increase in the social minimum wage
- 1 January 2025: New contribution rates for the Employers’ Mutual Insurance
- 1 January 2025: New parameters for withholding tax at source
- Tax optimisation tips: Young worker bonus, profit-sharing bonus, and impatriate scheme
- Benefit in kind – Company cars : What are the applicable rates in 2025?
- Digitisation of meal vouchers
- Remember to declare your employees’ telework via the DEMDET!
- Annual account reconciliation
- What about the next indexation?
1- Increase in the social minimum wage
As of 1 January 2025, the social minimum wage (application rate 944.43 of the sliding wage scale) has been increased by 2.6%. The new amounts are now as follows:
For employees:
For pupils or students, the remuneration cannot be less than 80% of the social minimum wage, scaled according to age:
For interns whose internship is at least for 4 weeks, the compensation is scaled according to the duration and type of internship:
* For interns who have successfully completed the first cycle of higher or university education (BTS [Advanced Technician’s Certificate] or Bachelor’s degree), the reference salary is the social minimum wage for skilled employees as provided under Article L. 152-8 of the Labour Code.
2- 1 January 2025: New contribution rates for the Employers’ Mutual Insurance
Companies are classified annually into 4 contribution classes depending on the financial absenteeism rate of their employees. The contribution rates for the “Employers’ Mutual Insurance” were changed on January 1.
The contribution rates for the 4 classes of the Employers’ Mutual Insurance for this year are as follows:
3- 1 January 2025: New parameters for withholding tax at source
As of 1 January 2025, the calculation of the payroll tax withholding is affected by the following factors: new tax scale, additional tax relief for class 1a, increase in the single parent tax credit, and modification of the social minimum wage tax credit.
- New tax scale
The Act of 20 December 2024 adjusted the tax scale for individuals by 2.5 index brackets, effective as of 1 January 2025. This means that employees now benefit from tax relief.
- Additional tax relief for Tax class 1A and increase in the single parent tax credit
The taxation of Class 1a has been significantly adjusted in the new tax scale so as to bring the tax burden of this class in line with that of Class 2. For example, for a gross salary of €4,000, the employee in Tax class 1A will be subject to a withholding tax of €215.40 (instead of €354.70).
Similarly, to lighten the burden on single-parent households in particular, the single parent tax credit has been raised as follows:
- For an adjusted taxable income of less than €60,000, the single parent tax credit is €3,504 (compared with €2,505 previously);
- For an adjusted taxable income between €60,000 and €105,000, the amount of the single parent tax credit is [€3,504 – (adjusted taxable income – €60,000) x 0.0612];
- For an adjusted taxable income of more than €105,000, the single parent tax credit is €750.
By way of reminder, the single parent tax credit is granted by inland revenue upon the taxpayer’s request and under certain conditions. Depending on the circumstances, it will be applied directly on the payslip; otherwise, it will be taken into account in the tax return.
- Change of the social minimum wage tax credit
As part of a social and solidarity tax policy, the government wanted to eliminate completely the tax burden on employees who receive the unskilled social minimum wage by increasing the social minimum wage tax credit.
For a gross monthly salary or, where applicable, a fictitious gross monthly salary of:
- €1,800 to €3,000, the social minimum wage tax credit is €81 per month,
- €3,000 to €3,600, the social minimum wage tax credit is €81 / 600 x [€3,600 – gross monthly salary (fictitious)] euros per month.
- Increase in CI-CO² tax credit
The formula for the CO2 tax credit has been updated. This change results in a maximum monthly increase of € 2.
For a gross annual salary of :
- € 936 to € 40.000, the CO² tax credit is €192per year
- € 40,001 to € 79,999, the CO² tax credit is calculated as follows : [192 – (gross salary – 40,000) x 0.0048].
4- Tax optimisation tips: Young worker bonus, profit-sharing bonus and impatriate scheme
The 2025 tax reform enables companies to enhance their competitiveness by offering employees bonuses with reduced tax burdens.
- Young worker bonus
This new bonus, intended to support employees at the beginning of their careers, benefits from a 75% tax exemption if the following conditions are met:
- Be under 30 years old at the beginning of the tax year;
- Be in possession of a first open-ended employment contract signed as of 2025 with an employer established in the Grand Duchy of Luxembourg or established abroad and having a permanent establishment in the Grand Duchy of Luxembourg;
- Stay with the same employer as long as they wish to benefit from the bonus, with a maximum of five years.
The maximum annual amount of the young worker bonus exempt from tax for full-time employment is consequently as follows:
- €5,000 for an annual gross salary ≤ €50,000
- €3,750 for an annual gross salary > €50,000 and ≤ €75,000
- €2,500 for an annual gross salary > €75,000 and ≤ €100,000
Annual gross salary refers to the remuneration (before incorporation of benefits in cash and in kind) of the tax year in which the young worker bonus is allocated.
- Profit-sharing bonus
Introduced in 2021, this scheme enables employers to pay employees a profit-sharing bonus when the company has made a profit. Under certain application conditions, this bonus is 50% tax-exempt.
Two notable updates have come into force as part of the tax reform:
– The total of the profit-sharing bonuses an employer can allocate to employees is now 7.5% (instead of 5% previously) of the positive operating result of the financial year immediately preceding the year for which the profit-sharing bonus is allocated.
– The maximum amount of the partially exempted bonus is increased to 30% (instead of 25% previously) of the gross annual salary of the employee in the tax year in which the profit-sharing bonus is allocated.
- Impatriate scheme
The introduction of the impatriate scheme has for many years enabled employers to exempt, under certain conditions, certain remuneration components linked to the particular situation of these employees.
To help companies attract key talents essential to their development, the reform provides a flat-rate system, characterised by a 50% tax exemption of the gross total annual remuneration. The annual gross eligible for this exemption is capped at €400,000.
This new flat-rate system therefore replaces the old system based on the exemption of actual costs borne by the employer and the partial exemption of the impatriation bonus.
5- Benefit in kind – company cars: What are the applicable rates in 2025?
In 2022, a Grand-Ducal regulation introduced new rules for determining the value of the benefit resulting from the provision of a company car. This measure was the first step in a comprehensive reform to encourage electric and hybrid vehicles through tax incentives while making traditional combustion engine models less advantageous. The reform was planned in two phases: a transitional phase, as it was known, starting as of 2023, and a second phase as of 2025.
- Combustion engine vehicles
As of 2025, combustion engine vehicles will be subject to a single rate of 2%, irrespective of their environmental efficiency. Employees using combustion engine vehicles will experience a significant increase in their benefit in kind.
This new regime applies to:
- Company cars newly registered as of January 2025, for which no contract was signed before 31 December 2024.
- Lease cars whose normal term expires after 31 December 2024, and whose contract would be extended as of January 2025.
- 100% electric vehicles
On 29 November 2024, the Luxembourg government announced the extension of the transitional regime for zero CO₂ emission vehicles. Initially planned for 2025, the increase in the rates for benefits in kind to 1% or 1.2% has been postponed by two years. This decision is part of a strategy to support the decarbonisation of automotive fleets while maintaining attractive incentives for companies and employees.
The current rates of 0.5% or 0.6% therefore remain applicable for electric cars registered until 31 December 2026 (or until 31 December 2027, if the contract for the vehicle was signed before 31 December 2026).
These rates will be doubled to reach 1% or 1.2% for electric vehicles newly registered as of January 2027, for which no contract was signed before 31 December 2026.
These measures apply also to hydrogen fuel cell vehicles.
6- Digitisation of meal vouchers
Since 1 January 2024, companies have been able to offer their employees digitised meal vouchers with a maximum value of €15. This digitisation option becomes the norm as of 1 January 2025!
As of this year, paper meal vouchers are actually a thing of the past! Whereas they could be issued and used until 31 December 2024, the digital format becomes mandatory as of 1 January 2025. All employees eligible for meal vouchers will therefore be equipped with a card, that can be used like a bank card, capped at a daily use of 5 times the value of the meal voucher.
7- Remember to declare your employees’ telework via the DEMDET!
As you know, since July 2023, Luxembourgish employers who allow their cross-border employees to telework must submit the “DEMDET” declaration to the Joint Social Security Centre so as to make sure that the employees remain affiliated with the Luxembourgish social security system.
To avoid triggering multiple procedures, it is recommended to declare telework for a projected period of at least 12 months (or as long as possible). Once the initially declared period has elapsed, the employer must submit a new declaration.
8- Annual account reconciliation
For employees hired in 2024, it may be beneficial to complete an annual account reconciliation – Explanations!
Taxpayers who started working in Luxembourg during 2024 can request a regularisation of payroll tax through annual account reconciliation so as to obtain a refund of any excess tax withheld at source.
The purpose of this reconciliation (Form 163) is to determine a tax applicable to the taxpayer’s annual taxable income. In fact, during the first year of employment in Luxembourg and in the event of arrival during the year, the tax is calculated through withholding as if the employee was present for the entire year, resulting in a higher tax being withheld.
In many cases, the tax withheld at source is higher than what should have been applied. The reconciliation will therefore enable the taxpayer to recover the excess tax paid during the year via his or her payslip.
This form can be used by non-resident employees who are not eligible for a tax return because they did not work at least 9 months in Luxembourg in 2024, but also by resident taxpayers who are not required to file a tax return.
9- What about the next indexation?
The last indexation took place on 1 September 2023.
An automatic indexation takes place when the average semi-annual index records a difference of 2,5% compared with the last reference index.
Based on the current inflation rate, STATEC estimates that the next indexation will not take place before April 2025.
By way of reminder, the indexation is a matter of public policy and concerns all employees under Luxembourgish employment contracts, as well as students, interns, and apprentices, whose remuneration will be increased by 2.5%.
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