The cost of Housing is one of the main issues in Luxembourg, especially when seeking to attract junior talents from abroad.
To help ease the situation, the government has introduced a new tax exemption applicable on a house renting allowance that an employer may offer at its discretion.
The exemption is subject to following limitations and conditions:
- The employee must be under 30 years of age at the beginning of the fiscal year for which the house renting allowance is paid
- The employee’s total annualised remuneration on full-time basis, including variable remuneration and other benefits but excluding the house renting allowance, may not exceed 30 times the minimum social wage for qualified workers, i.e. at current index of 944,43 EUR 92.553,30
- The annual remuneration of a part-time employee should be converted to full-time remuneration
- In the event of an employee joining during the year, the remuneration must be extrapolated on a full year
- It is the employer’s responsibility to ensure that the threshold is not exceeded
- The tax exemption is of 25% of the house renting allowance capped monthly at 25% of €1.000 (the “Exemption Base”), i.e. €250, for a full time employee and subject to the following restrictions and conditions:
- The Exemption Base may not exceed the actual rent paid, excluding rental charges. If the property is rented by several people (shared tenancy), the rent taken into account will be divided by the number of people registered in the lease contract unless this contract specifies a differentiated distribution of the rent.
- The Exemption Base is prorated in the case of a partial month and if the employee is working part-time
- In the event of partial taxation in a foreign country, the Exemption Base is prorated to the number of days taxed in Luxembourg
Practical considerations in order to operate a correct tax exemption and more generally from a reward policy perspective:
- The tax exemption does not apply to accommodation owners
- We advise to document a clear housing allowance policy clarifying eligibility criteria (quid for accommodation owners?) and evolution of a house renting allowance in case of exceeding the age limit, long terms absences (maternity, parental, sickness…), exceeding the total remuneration limit, purchase of housing… to ensure equity and avoid claims on that basis
- The employer will need to obtain a copy of the lease agreement in order to assess eligibility of the employee for tax exemption and limitations thereof (for example: if the lease is contracted in the name of the spouse only, tax exemption can not be applied to the employee)
- Employers need to monitor the following situations and adjust (retroactively) the tax exemption accordingly:
- is the employee on the basis of double tax treaties becoming partly taxable in there country of residence (teleworking…)
- re-assess tax exemption criteria in case of a change of address
- The tax exemption would not be applicable if the house renting allowance is offered against a reduction of base salary or any other taxable remuneration element
The eligibility of every particular case has to be verified. It is the employer’s responsibility to check that all the above conditions are met (the employee’s rental contract is conclusive). Do not hesitate to ask us for help.