Benefits in kind and salary package in Luxembourg

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

Benefits in kind are added to the salary. They must therefore be declared for tax purposes. They can take different forms: company housing, company car, meal vouchers, … We detail below the most common forms.

In a dynamic job market, these bonuses allow human resources to attract new talent. In-kind benefits are usually offered when a new employee is hired. They can also be offered to existing employees to encourage them to stay with the company.

According to the latest STATEC statistics, 26% of employees in Luxembourg receive benefits in kind. However, the weight of this type of compensation remains marginal (less than 2%) of total compensation.

Salary package, legal and fiscal framework

Benefits in kind are part of the salary package. They are discussed during the negotiation phase of the overall remuneration: gross monthly fixed salary + variable part paid in the form of bonus + other benefits in kind. Reimbursements of 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 offered free of charge to the employee, the benefits in kind must be valued at the price at which the employee could acquire them privately.
They are subject to the same social security contributions as the salary, which are deducted from the gross salary. They must also be declared to the tax authorities 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 retains his salary and benefits in kind. On the other hand, if the notice period is not completed, the employee cannot claim to keep certain types of benefits without the employer’s agreement.

What benefits in kind?

Depending on the type of industry, the benefits-in-kind offered are very disparate. Certain sectors are more conducive to benefits in kind. For example, traveling salespeople will have easier access to a vehicle. 44% of employees in the financial, real estate, scientific, technical and administrative sectors receive benefits in kind. Only 28% of employees in the service, wholesale and repair, transport and storage, accommodation and catering, information and communication sectors receive benefits in kind.

Meal vouchers and access to the company canteen are the most common benefits regardless of the sector of activity. The use of a company car for private purposes is also widespread. In the industrial and construction sectors, the first benefit is the provision of a vehicle.

Meal vouchers, luncheon vouchers and canteen or company restaurant expenses

Some companies offer their employees the possibility to have their meals in the company restaurant. In this case, the fiscal value applied is about 2.80 euros per meal.

In the absence of a canteen, companies can provide their employees with meal vouchers. These are used by the employee to pay for his or her meal in catering establishments outside the company that accept this type of payment. Meal vouchers are personal and must mention the employer.
Employees who receive meal vouchers or luncheon vouchers contribute 2.80 euros per voucher, regardless of the 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.

Provision of a vehicle

The provision of a vehicle for the employee’s professional and private needs constitutes a significant benefit in kind. This provision is mainly offered to executives or sales people. A company car used solely for business travel is not a benefit in kind. However, the vehicle must be parked at the company outside working hours. On the other hand, the use of a vehicle for commuting triggers the notion of benefit in kind.

More and more, companies are making these vehicles available through a leasing solution that includes the financing of the vehicle, insurance, maintenance, tires, etc. Some companies also cover the cost of fuel. The conditions for providing a vehicle vary from company to company. This is negotiated directly between the employer and the employee.

Employees who use a company car for private purposes are taxed monthly. The value retained is a percentage of the price including tax 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 housing by the company

The provision of housing helps attract new expatriate employees. The provision of housing where the lease agreement is in the name of the employer or belongs to the employer is considered a benefit in kind. This will be evaluated on a flat rate basis on the basis of the rental or unit value provided by the Tax Administration.
The payment of a housing allowance as a cash payment to the employee to fund all or part of the employee’s housing costs is not considered a benefit in kind.

When the employer pays all or part of the rental costs for electricity, gas or telecommunications, these costs are added to the total amount of the benefit in kind.

Preferred rate loans and interest subsidy

Banking institutions traditionally offer their employees benefits in kind related to their activity. For example, they can borrow at preferential rates or benefit from interest subsidies.
In the first case, the employee benefits from real estate or personal loans at reduced rates, or even interest-free. These benefits are then assessed on a lump sum basis according to a rate set by law.
In the case of interest subsidies, the employer repays the interest on loans taken out personally on behalf of the employee. A tax and social security exemption applies to this benefit in kind under certain conditions.

Supplementary pension plans

Some companies offer their employees supplementary pension plans for their retirement. This second pillar, made up of pension plans, is in addition to the two other pension pillars.

First pension pillar financed by the system of employer and employee contributions,
The third pillar is the individual pension plan through capitalization savings offered by banks and insurance companies.

The Luxembourg legislative framework provides companies with 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 topics: retirement, death, disability, etc. The rights acquired are guaranteed until the employee retires. This includes dismissal for gross misconduct.
The contributions paid by the employee in this pension plan are tax deductible up to 1,200 euros per year. At the end of the plan, a tax exemption applies on the benefits paid to Luxembourg residents.

Tuition fees

Some companies, especially in the case of expatriation packages, pay all or part of the school fees of the employee’s children.
The European School I and II has 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 amount of expenses disbursed by the employer.

Participation plans

Profit-sharing plans enable employees to take a direct interest in the company’s performance. They build long-term employee loyalty through the granting of company stock or stock options (term stock options).
Vested shares 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 participation plan.

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