In Luxembourg, legislation and the tax framework encourage companies to offer benefits in kind to their employees. In a context of a dynamic labour market, these benefits allow human resources to attract new talented employees. Benefits in kind are generally offered when a new employee is hired. They can also be offered to existing employees to encourage them to stay.
Salary package and benefits in kind
Benefits in kind are part of the salary package and are discussed during the negotiation phase of the overall remuneration: fixed monthly salary + variable part paid in the form of a bonus + other benefits. Reimbursement of expenses is not considered as a benefit in kind.
Benefits in kind complete the monthly salary and must be expressly specified in the employment contract. Even if they are offered free of charge to the employee, benefits in kind must be valued at the price at which the employee could acquire them privately.
They are subject to social security contributions deducted from the gross salary in the same way as the salary. They must also be declared for tax purposes by the beneficiary in the same way as the salary.
In the event of termination of the employment contract and during the notice period, the employee keeps his or her salary and benefits in kind.
Benefits in kind can take different forms: company accommodation, company car, meal vouchers, etc. We detail below the most common forms.
What benefits in kind?
Meal tickets and company restaurant expenses
Some companies offer their employees the opportunity to eat in the company’s restaurant. In this case, the tax value applied is around 2.80 euros per meal.
If there is no canteen, companies can provide their employees with meal vouchers. These are used by the employee to pay for his/her meal outside the company, in restaurants or places accepting this type of payment. Meal vouchers are personal and must mention the employer name.
Employees anjoying from meal vouchers pay 2.80 euros per meal voucher, regardless of its face value. The difference between the amount of the voucher (up to 10.80 euros to benefit from the maximum exemption) and the employee’s contribution is exempt from tax and social security contributions for the employee.
Supply of a vehicle
The supply of a vehicle for the employee’s professional and private needs is a significant benefit in kind. This is mainly proposed to senior managers or sales executives. A company car is not a benefit in kind, as it is only used for business travel and remains parked at the company outside working hours. On the other hand, the use of the vehicle for commuting triggers the notion of a benefit in kind.
More and more companies are making these vehicles available through a leasing solution that includes vehicle financing, insurance, maintenance, tyre costs, etc. Some companies also cover fuel costs. The conditions for offering a vehicle to employees vary in practice according to the companies.
Employees who use a company vehicle for their private needs are taxed monthly. The value used is a percentage of the price including VAT of the new vehicle. This percentage is calculated according to the CO2 emission category to which the vehicle belongs (between 0.8 and 1.8%), as well as the type of fuel consumed.
Provision of accommodation
The provision of housing makes it possible to attract new expatriate employees. Only the provision of housing whose lease contract is done by the employer or belonging to him is considered as a benefit in kind. This will be assessed on the basis of the rental or unit value provided by the Tax Administration.
The payment of a housing allowance as a sum of money to the employee to finance all or part of his housing costs is not considered to be a benefit in kind.
Borrowings at prime rate and interest subsidy
Banking institutions traditionally offer their employees benefits in kind related to their activity, such as the possibility of borrowing money at preferential rates or interest subsidies.
In the first case, the employee benefits from personal or real estate loans at reduced or even interest-free rates. These benefits are then valued on a flat-rate basis set by law.
In the case of interest subsidies, the employer reimburses the interest on loans contracted by the employee for private use. A tax and social security exemption applies under certain conditions to this benefit in kind.
Supplementary pension schemes
Some companies provide their employees with supplementary pension plans for their retirement. This second pillar, consisting of pension plans, completes the other two pension pillars.
- First pension pillar financed by the system of employer and employee contributions,
- The third pillar is that of individual pension provision through savings proposed by banks and insurance companies.
Companies benefit from a high degree of flexibility in this area within the Luxembourg legislative framework. These supplementary pension plans may benefit all employees of the company or a certain category. They cover various topics: retirement, death, disability, etc. The acquired rights are guaranteed until the employee reaches retirement age. This also applies in the event of dismissal for serious misconduct.
The contributions paid by the employee into this pension plan are tax deductible up to 1,200 euros per year. At the end of the plan, a tax exemption applies to benefits paid to Luxembourg residents.
Some companies, particularly in the case of expatriation packages, cover all or part of the school fees of the employee’s children.
The European Schools I and II thus maintain special agreements with the European Community on behalf of its officials or with some large local companies.
The benefit in kind granted is calculated on the amount of costs paid by the employer.
Participation plans allow employees to be directly involved in the company’s performance. They build long-term employee loyalty through the allocation of company shares or stock options.
The acquired shares are taxed on the employee when they are transferred. The valuation is the market value, less the price, if any, paid by the employee for their acquisition. A discount applies to this market price if a blocking period was provided for in the shareholding plan.