Benefits in kind

In Luxembourg, legislation and the tax framework encourage the provision of benefits in kind to company employees.

Benefits in kind can take various forms: company housing, company car, meal vouchers, etc. Below, we detail the most common forms on the Luxembourg labor market.

Benefits in kind: a bonus for employee loyalty

Remuneration and benefits in kind

Benefits in kind are a significant addition to an employee's overall remuneration. They supplement the salary that the employee receives at the end of the month. They must therefore be declared to the tax authorities as part of the employee's overall income.

In a dynamic job market, these perks enable human resources departments to attract new talent. Offered when hiring a new employee, they can also be offered to existing 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 remains marginal (less than 2%) of total compensation.

18% have meal vouchers or access to a company canteen. 8% have a company car. 5% have their transportation costs reimbursed or have access to a parking space linked to their job. However, given the cost of parking today, this benefit in kind is likely to be reserved for top management.

Nevertheless, the monetary value of these benefits in kind represents less than 2% of total remuneration.

Salary package, legal and tax framework in Luxembourg

In Luxembourg, benefits in kind are part of the overall salary package. The employer and future employee agree on this package during the negotiation phase of the overall remuneration: fixed gross monthly salary + variable portion paid in the form of a bonus + other benefits in kind. Reimbursements of professional 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 offered to the employee free of charge, benefits in kind must be valued at the price at which the employee could acquire them privately.

Benefits in kind are subject to social security contributions in the same way as salary, which are deducted from gross salary.

They must also be declared for tax purposes by the beneficiary in the same way as salary.

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 completed, the employee cannot claim to retain certain types of benefits without the employer's agreement.

Would you like to know more about taxation in Luxembourg? Find an overview here.

What are the benefits in kind in Luxembourg?

The benefits in kind offered vary greatly depending on the type of industry.

Benefits in kind by sector and occupation

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 enjoy benefits in kind. In contrast, only 28% of employees in the service, wholesale and repair, transport and storage, accommodation and catering, and information and communication sectors enjoy benefits in kind.

Today, all cross-border workers, regardless of their sector of activity, are entitled to 34 days of teleworking, 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 canteen are the most common benefits across all sectors. The use of a company car for private purposes is also very widespread. In the manufacturing and construction sectors, the most common benefit is the provision of a vehicle.

Company restaurants

Some companies offer their employees the option of eating in the company restaurant. In this case, the tax value applied is around €2.80 per meal.

Valuation of meal vouchers and restaurant vouchers

If there is no canteen, companies can provide their employees with meal vouchers. These are used by employees to pay for their meals in restaurants outside the company that accept this type of payment. Meal vouchers are personal and must mention the employer. They can be used in restaurants, but also in stores to buy food.

Meal benefits and taxation

Employees who receive meal vouchers or restaurant vouchers also contribute €2.80 per meal voucher. The face value can be up to €15. The difference between the amount of the voucher (up to €10.80 to benefit from the maximum exemption) and the employee's contribution is exempt from tax and social security contributions for the employee.

Provision of a company car

The provision of a vehicle for the employee's professional and private use constitutes a significant benefit in kind. This provision is mainly offered to senior managers or sales representatives.

Sales representatives who travel frequently have easier access to a company or service vehicle, due to the need to visit their customers.

Company car and service car

A company car is only used for business travel. It does not constitute a benefit in kind. However, the vehicle must be parked at the company outside working hours.

On the other hand, the use of a company car for commuting triggers the concept of a benefit in kind.

Increasingly, companies are providing these vehicles through a leasing solution that includes vehicle financing, car insurance, vehicle maintenance, tires, etc. Some companies also cover fuel costs.

The conditions for providing a vehicle vary in practice from company to company. This point is negotiated directly between the employer and the employee.

Company cars and taxation

Employees who have a company vehicle for their private use are taxed on a monthly basis. The value used is a percentage of the price of the new vehicle, 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.

This was evident when employees of a shopping center had to give up their free parking spaces at the end of 2022. It must be said that financial investment in parking lots is proving to be quite lucrative. The prices of parking spaces and enclosed parking garages in Luxembourg are skyrocketing.

Increasingly, these professional parking spaces are reserved for senior executives.

It would appear that more than 60% of residents of Luxembourg City have a professional parking space, compared with 55% of non-residents.

Provision of accommodation by the company

The provision of accommodation by the company is an asset in attracting new expatriate employees.

Only accommodation provided under a lease in the employer's name or owned by the employer is considered a benefit in kind. This benefit in kind related to company accommodation 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 to the employee to finance all or part of their housing costs is not considered a benefit in kind.

When the employer covers all or part of rental 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 banking institutions traditionally offer their employees benefits in kind related to their business. For example,they have the option of borrowing at preferential rates or receiving interest subsidies.

In the first case, employees benefit from reduced-rate or even interest-free real estate or personal loans. 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 loans taken out by the employee on a personal basis. Under certain conditions, this benefit in kind isexempt from tax and social security contributions.

Supplementary pension schemes

Some companies allow theiremployees to increase their income when they retire through supplementary pension plans. This second pillar is in addition to the other two pillars of pension contributions.

Under Luxembourg law, companies enjoy a great deal of flexibility in this area. These supplementary pension plans can benefit all employees of the company or a certain category. They cover various areas: retirement, death, disability, etc. The rights acquired 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 per year. Upon leaving the plan, a tax exemption applies to benefits paid to Luxembourg residents.

Find out more about the three pillars of contributions for old-age pensions.

Payment of school fees for employees' children

Some companies, particularly in the case of expatriation packages, cover all or part of the school fees for employees' children.

The European Schools I and II, in particular, have special agreements with the European Community on behalf of its officials, or with certain large companies in the area.

This may also be the case for other international schools in Luxembourg.

The benefit in kind granted is calculated on the basis of the amount of the costs incurred by the employer.

Company profit-sharing and incentive plans

Profit-sharing plans allow employees to benefit directly from the company's performance. They build long-term employee loyalty by awarding company shares or stock options (options to purchase shares in the future).

The shares acquired are taxed to the employee upon transfer. The valuation used is the market value, less any price paid for their acquisition. A discount is applied to this market price if a lock-up period was provided for in the profit-sharing plan.

Find out more about remuneration in Luxembourg by sector of activity and the minimum salary levels required.