ENHANCED PROFIT-PARTICIPATING BONUS REGIME
Luxembourg has strengthened its profit-participating bonus regime effective from tax year 2025 by increasing key thresholds and simplifying employer obligations, offering greater room to reward employees.
Key incentives
50%
Tax exemption on eligible profit-sharing bonuses
30%
Employee cap: bonuses can now reach up to 30% of annual gross salary (previously 25%)
7.5%
Employer cap: total profit-participating bonuses may now amount to up to 7.5% of the prior year’s net profits
Who can benefit?
- Employees employed in Luxembourg and affiliated to Luxembourg social security
- Employers who maintain regular financial accounts
Employer guidance
Bonus allocation
Employers must respect the updated thresholds:
- Up to 30% of the employee’s annual gross salary
- Up to 7.5% of the employer’s prior-year net profits
Employer reporting
- Employers must electronically declare all employees receiving a profit-participating bonus
- Standard template provided by the Tax Authority (ACD)
- Submission via MyGuichet.lu
- Declaration timing: at payment (typically via payroll) and no later than 31 January of the following year
WHY IT MATTERS
- More reward for employees, with greater flexibility for employers
- Simplified framework, consistent with Luxembourg’s 2025 tax modernisation
- Enhanced retention and motivation, strengthening competitiveness within Luxembourg’s financial centre