Benefits in kind
In Luxembourg, legislation and the tax framework encourage companies to provide benefits in kind to their employees. We take a look at recent developments in this area.
Benefits in kind can take various forms: company housing, a company car, meal vouchers, etc. Below, we detail the most common forms in the Luxembourg labor market.
Benefits in kind: a way to build employee loyalty
Compensation and benefits in kind
Benefits in kind are a significant addition to an employee’s total compensation. They supplement the salary the employee receives at the end of the month. They must therefore be reported to the tax authorities as part of total income.
In a dynamic job market, these perks allow HR departments to attract new talent. Offered when hiring a new employee, they can also be provided to current employees to encourage them to stay with the company.
Share of benefits in kind in total compensation in Luxembourg
According to the latest STATEC statistics, 26% of employees in Luxembourg receive benefits in kind. However, this type of compensation accounts for a marginal portion (less than 2%) of total compensation.
18% reportedly receive meal vouchers or have access to a company cafeteria. 8% receive a company car. 5% have their transportation costs reimbursed or have access to a parking space provided by their employer. However, given today’s parking costs, this benefit in kind is likely reserved for top management.
Nevertheless, the monetary value of these benefits in kind represents less than 2% of total compensation.
Compensation package negotiated between the employer and the prospective employee
In Luxembourg, benefits in kind are part of the overall compensation package. The employer and future employee agree on this package during the negotiation phase of the overall compensation: fixed gross monthly salary + variable portion paid as a bonus + other benefits in kind. Reimbursements for business expenses are not considered benefits in kind.
Benefits in kind supplement the monthly salary. They must be expressly specified in the employment contract. Even if they are provided to the employee free of charge, benefits in kind must be valued at the price at which the employee could acquire them privately.
Termination of the Contract and Benefits in Kind
In the event of termination of the employment contract and during the notice period, the employee retains their salary and benefits in kind. However, if the notice period is not observed, the employee cannot claim to retain certain types of benefits without the employer’s consent.
Recent developments in benefits in kind in Luxembourg
In recent years, the tax framework for benefits in kind and their use has evolved. Employers and employees are now encouraged to adopt a more informed approach, particularly by taking into accountthe actual impact of these benefits on net compensation.
Taxation of benefits in kind subject to social security contributions and income tax
Contrary to popular belief, benefits in kind are not “free” from a tax perspective. They are included in total compensation and:
- are subject to social security contributions,
- must be reported to the tax authorities,
- are valued at their actual or flat-rate value.
They are deducted from gross pay and must also be reported for tax purposes by the recipient in the same way as salary.
Thus, certain benefits can increase gross salary without significantly improving the net salary received.
Want to learn more about taxation in Luxembourg? Find an overview here.
Changes to taxation for company cars
Taxation of company cars has undergone a major change since 2025. From now on, gasoline and hybrid vehicles are subject to a single flat rate of 2% applied to the vehicle’s price, which can significantly increase the employee’s taxable income.
Conversely, electric vehicles still benefit from a more favorable regime, with reduced rates ranging from 0.5% to 0.6% through the end of 2026. A gradual increase is, however, planned starting in 2027.
This shift reflects a desire to steer compensation policies toward more sustainable solutions (including in the field of solar power), while altering the financial balance for employees.
Toward more flexible and personalized packages
In response to these changes, companies in Luxembourg are adapting their practices. There is a growing trend toward offering more flexible packages, allowing employees to choose between different components:
- fixed compensation,
- variable bonuses,
- benefits in kind,
- working conditions (remote work, flexibility).
In addition, certain benefits are gaining importance, particularly those related to quality of life and expatriation: housing assistance, coverage of school expenses, or relocation support.
Benefits that remain a key attraction
In a competitive job market, benefits in kind remain a key tool for attracting and retaining talent. Their effectiveness, however, depends on their transparency and alignment with employees’ actual needs, particularly in an international context where personal circumstances can vary widely.
What are the benefits in kind in Luxembourg?
Depending on the industry, the benefits in kind offered vary widely.
Benefits in kind by industry and profession
Some sectors are more conducive to benefits in kind in Luxembourg than others.
For example, 44% of employees in the financial, real estate, scientific, technical, and administrative sectors receive benefits in kind. In contrast, only 28% of employees in the services, wholesale trade and repairs, transportation and warehousing, accommodation and food services, and information and communication sectors receive benefits in kind.
Today, all cross-border workers, regardless of their industry, are entitled to 34 days of remote work, with no impact on their taxation in their country of residence.
Benefits in kind related to employee meals
Meal vouchers and access to the company cafeteria are the most common benefits across all sectors. The use of a company vehicle for personal purposes is also very common. In the manufacturing and construction sectors, the top benefit provided is the use of a company vehicle.
Company Cafeterias
Some companies offer their employees the option of eating meals in the company cafeteria. In this case, the tax value applied is approximately 2.80 euros per meal.
Valuation of meal vouchers and restaurant tickets
If there is no company cafeteria, companies may provide their employees with meal vouchers. These are used by the employee to pay for meals at restaurants outside the company that accept this type of payment. Meal vouchers are personal and must specify the employer. They can be used in restaurants, but also in stores to purchase food.
Meal benefits and taxation
Employees receiving meal vouchers or restaurant tickets also contribute 2.80 euros per voucher. The face value can be up to 15 euros. The difference between the voucher amount (up to 10.80 euros to qualify for the maximum exemption) and the employee’s contribution is exempt from tax and social security contributions for the employee.
Provision of a company vehicle
The provision of a vehicle for the employee’s professional and personal use constitutes a significant benefit in kind. This arrangement is primarily offered to senior executives or sales representatives.
Field sales representatives have easier access to a company car or service vehicle, due to the requirement to travel to their clients’ locations.
Company car and service car
A service vehicle is used solely for business travel. It does not constitute a benefit in kind. However, the vehicle must be parked at the company’s premises outside of working hours.
On the other hand, using a company car for commuting triggers the concept of a benefit in kind.
Increasingly, companies provide these vehicles through a leasing arrangement that covers vehicle financing, auto insurance, maintenance, tires, and more. Some companies also cover fuel costs.
The specific terms for providing a vehicle vary by company. This is negotiated directly between the employer and the employee.
Company Cars and Taxation
Employees who use a company vehicle for personal purposes are taxed on a monthly basis. The taxable amount is a percentage of the new vehicle’s price, including tax. This percentage is calculated based on the vehicle’s CO2 emission category (between 0.8% and 1.8%) and the type of fuel used.
Company parking spaces
Another benefit-in-kind related to the vehicle is the provision of a parking space at the company or in the immediate vicinity of the workplace. While the cost of daily parking can seriously strain the monthly budget, having a free parking space is an undeniable benefit-in-kind.
Take, for example, the employees of a shopping center who had to give up their free parking spots at the end of 2022. It must be said that investing in parking facilities is quite profitable. Prices for parking spots or enclosed garages in Luxembourg are skyrocketing.
Increasingly, these professional parking spaces are reserved for senior executives
It appears that over 60% of residents in the city of Luxembourg have access to a company parking space, compared to 55% for non-residents of the city.
Company-provided housing
The provision of housing by the company is an asset for attracting new expatriate employees.
Only the provision of housing where the lease is in the employer’s name or owned by the employer is considered a benefit in kind. This benefit in kind related to company housing will be assessed on a flat-rate basis based on the rental or unit value provided by the Tax Administration.
The payment of a housing allowance provided as a cash sum to the employee to cover all or part of their housing costs is not considered a benefit in kind.
When the employer covers all or part of utility costs such as electricity, gas, or telecommunications, these costs are added to the total amount of the benefit in kind.
Preferential-rate loans and interest subsidies
Luxembourg banks traditionally offer their employees benefits in kind related to their work. For example, employees may be able to borrow at preferential rates or receive interest subsidies.
In the first case, the employee receives mortgage or personal loans at reduced rates, or even interest-free. These benefits are then assessed on a flat-rate basis in the tax return according to a rate set by law.
In the case of interest subsidies, the employer reimburses the interest on personal loans on behalf of the employee. A tax and social securityexemption applies to this benefit in kind under certain conditions.
Supplementary Pension Plans
Some companies allowtheir employees to increase their retirement income through supplemental pension plans. This second pillar supplements the other two pillars of pension contributions.
Under Luxembourg law, companies enjoy significant flexibility in this area. These supplemental pension plans may benefit all employees of the company or a specific category. They cover various areas: retirement, death, disability, etc. Vested rights are guaranteed until the employee reaches retirement age. This applies even in the event of dismissal for serious misconduct.
Contributions paid by the employee into these pension plans are tax-deductible up to 1,200 euros annually. Upon withdrawal from the plan, a tax exemption applies to benefits paid to Luxembourg residents.
Learn more about the three pillars of contributions for old-age pensions.
Payment of school tuition for employees’ children
Some companies, particularly in the case of expatriate packages, cover all or part of the school tuition fees for employees’ children.
The European School I and II, in particular, have special agreements with the European Community on behalf of its officials, or with certain major local companies.
This may also be the case for other international schools in Luxembourg.
The benefit in kind provided is calculated based on the amount of the fees paid by the employer.
Employee Participation and Profit-Sharing Plans
Participation plans allow employees to have a direct stake in the company’s performance. They foster long-term employee loyalty through the allocation of company shares or stock options (options to purchase shares at a future date).
The shares acquired are taxed to the employee upon transfer. The valuation used is the market value, minus any price paid for their acquisition. A discount applies to this market price if a lock-up period was provided for in the profit-sharing plan.
Learn more about compensation in Luxembourg by industry and the required minimum salary levels.
Key Considerations for Newcomers
When negotiating your compensation package in Luxembourg, it is essential to take a holistic view and not limit yourself to the advertised gross salary.
- Assess the net impact: certain benefits in kind are taxable and can reduce your actual take-home pay.
- Balance salary and benefits: an attractive benefit (e.g., a company car) isn’t always the most financially advantageous choice.
- Request a detailed estimate: don’t hesitate to ask for a simulation that includes taxes and contributions.
- Tailor your choice to your situation: family needs, housing, mobility, or education can influence the relevance of the benefits offered.
- Anticipate changes in regulations: certain tax provisions may change over time, particularly regarding vehicles.
A successful negotiation relies on a thorough understanding of the true value of each component of the package, beyond its initial presentation.
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