Luxembourg | Employment Tax | The ‘rental premium’: An opportunity to optimize employee remuneration?

Employment Tax

Luxembourg | The “rental premium”: an opportunity to optimize employee remuneration?

Summary

The law dated 22 May 2024 introduces a series of measures which aims to stimulate the Luxembourg housing market. Among the package of tax measures, there is one which impacts employment tax. The new law introduces a new paragraph 13c in article 115 of the Luxembourg income tax law, which allows, under certain conditions, the tax exemption of a “rental premium”. This new measure is applicable as from 1 June 2024.

The detail

Description of the law

How does the exemption work?
The new paragraph 13c of article 115 of the LITL (Luxembourg income tax law) provides for the exemption of 25% of a “rental premium” paid monthly by an employer to an employee in connection with the rental of their main residence.

Conditions
The conditions provided for in 13c of the article 115 of the LITL are the following:

• The employee must be under 30 years old on January 1 of the tax year,
• The “rental premium” paid by the employer cannot exceed the amount of rent excluding utilities due to be paid by the employee, as evidenced by a rental agreement,
• The employee’s gross yearly employment income, including all benefits except the “rental premium” cannot exceed thirty times the monthly minimum social wage for qualified employees (i.e. EUR 92,553.30 based on the index applicable on 1 June 2024).

A Grand-Ducal decree also dated 22 May 2024 provides additional practical details on how employer can implement the “rental premium”.

There is no limitation regarding the country where the rented property is located. This provision therefore also applies to frontier workers meeting the above conditions. The exemption must be requested and claimed via the Luxembourg payroll.

Practical example

Assumptions
Company X hires a new employee aged 28 and paying a rent of EUR 1,500 per month excluding utilities. He is single and benefits from tax class 1. His monthly gross base salary amounts to EUR 4,200 (scenario A). The company may decide to structure the remuneration package differently, offering him a monthly gross base salary of EUR 3,200 plus a monthly gross “rental premium” of EUR 1,000 (scenario B).

Comparative calculations

Monthly comparative calculations in EUR between scenarios A and B described here above
	Scenario A	Scenario B
Gross base salary	4,200	3,200
Gross “rental premium”	–	1,000
Total gross income	4,200	4,200
Social security contributions	(464)	(464)
“Rental premium” exemption	–	(250)
Taxable basis	3,736	3,486
Income tax*	(472)	(389)
Dependency contribution	(50)	(50)
Total net income	3,214	3,298
Monthly net saving	–	84
Yearly net saving	–	1,008

* including employee and CO2 tax credits

Conclusion

This regulation provides some limited relief to employees facing high rental costs. However, the implementation requires employers to manage a substantial administrative burden in order to ensure compliance.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Eric Paques
Partner

Denise Chambers
Director

Quentin Cosco
Manager