Relocation and Tax: A Long-Term Perspective

In Luxembourg, taxation can play a substantial and enduring role in shaping both the professional and personal financial journey of international talent. Beyond the headline remuneration, employers in Luxembourg may highlight various tax incentives, such as the expatriate regime or housing allowances, that enhance the overall attractiveness of the offer. But some tax benefits are not just one-off perks. For many people, Luxembourg’s tax environment provides advantages that can be leveraged throughout their careers and lives, from the first day on the job to long-term wealth planning and even succession.

Franz Kerger, Tax Partner at A&O Shearman, explains how understanding the ‘tax life cycle’ can help talent make more informed, strategic decisions when considering a career move to Luxembourg.

The Luxembourg labour market is not only dynamic, it also reserves some interesting tax mechanisms for young talents. From 2025, an employee under 30 years of age who signs their first contract in Luxembourg can benefit from a tax-free bonus paid by their employer. The tax exemption can reach 75% of this premium, with ceilings ranging from €2,500 to €5,000, depending on the salary level which must not exceed €100,000 gross per annum.

This is a concrete way of supporting entry into working life. And as Luxembourg plays the future card, to compensate for the high cost of housing, young employees can also receive a housing allowance that is 25% tax-free, within the limit of €1,000 per month, if their remuneration is less than 30 times the minimum monthly wage.

Since 2025, an international employee who has not resided or worked in the region for at least 5 years (within a 150 km radius around the Luxembourg border) can benefit from a 50% tax exemption on a portion of their salary (up to €400,000 gross per year), provided they earn at least €75,000 gross annually among other conditions. This advantage applies for the first eight years. This is significant. It allows expatriates to offset part of the costs related to their installation while benefiting from a competitive tax framework compared to their country of origin.

Beyond advantages intended for expats, other incentives benefit each resident, depending on their company’s generosity and their salary level.

If an employer wants to motivate and retain their Luxembourg-based staff, they can grant, within certain limits, a performance bonus that is 50% tax-exempt. Since 2025, this bonus can represent up to 30% of the employee’s annual remuneration, and the company can devote up to 7.5% of its net profits to it. And in this case, the advantage can be obtained throughout one’s career, provided the company maintains its profitable situation.

Another advantage, little known but which can pay handsomely: the capping of social contributions. In Luxembourg, social deductions (approximately 12.5% for the employee) only apply up to a monthly ceiling (€13,518.68 in 2025 except for the 1.4% contingency insurance). This means that beyond this threshold, income is received without additional deductions. A strong argument for attracting the greatest finance experts.

As one advances in life, the savings that accumulate logically transform into investments: shares, works of art, cryptocurrencies… So, it’s worth knowing that in Luxembourg, capital gains on the disposal of movable assets (securities, digital assets, etc.) are exempt from tax, if the asset has been held for at least six months and the person does not hold more than 10% of a Luxembourg company.

And if one transfers their business to Luxembourg? The so-called “step-up” measure allows, in case of a change of tax residence to Luxembourg, to revalue company shares at their market value on the date of installation. This means that the previous capital gain will not be taxed in case of future disposal. Only the capital gains building up after arrival in the country will be taken into account.

Even in life’s final chapter, Luxembourg offers reassuring continuity, its inheritance and wealth transmission rules provide peace of mind for those wishing to leave a meaningful legacy.

There are no inheritance duties in direct line between ascendants and descendants nor between spouses or partners linked by a partnership declaration for at least 3 years. And if the family situation is more complicated, other solutions exist: donation allows one to transfer during one’s lifetime part of one’s patrimony to a person of one’s choice.

Luxembourg’s tax framework is not just a short-term incentive for new arrivals, it is a long-term strategic asset. From welcoming young professionals with targeted exemptions, to supporting mid-career expatriates and offering capital gains protection, all the way to smooth wealth transfer mechanisms in later life, the country’s tax system accompanies individuals at every major step of their financial journey.

As Franz Kerger aptly puts it, Luxembourg’s appeal lies not only in its career opportunities, but also in the continuity and foresight of its tax planning environment. For international professionals and their families, the decision to relocate here is not merely about today’s salary, it’s about building financial stability and legacy over a lifetime.