On 27 February 2023, the Luxembourg Direct Tax Administration (Administration des contributions directes) issued circular L.I.R. No. 115/12 (the “Circular”) aiming at clarifying the rules applicable to the prime participative. The Circular replaces the previous circular L.I.R. No. 115/12 dated 8 March 2021.
Background
The Luxembourg 2021 budget law of 19 December 2020 (the “2021 Budget Law”) introduced a profit-sharing bonus tax regime (prime participative). Under this tax scheme, employees receiving a bonus from their employer can benefit from an income tax exemption of 50% of the bonus amount, upon fulfilment of certain conditions.
One condition rests on the realisation by the employer of an accounting positive result in the tax year preceding the one in which the bonus is paid to employees, with the amount of the profit-sharing bonus paid out not exceeding 5% of such accounting profit.
The Luxembourg 2023 budget law of 23 December 2022 (the “2023 Budget Law”), amended the aforementioned condition by providing that the profit-sharing bonus can be assessed according to the positive algebraic sum of the results of the members of the integrated group, within the meaning of Article 164bis L.I.R., to which the employer belongs (“profit sharing of integrated group”). In such case the 5% limit is to be calculated on the basis of the positive algebraic sum of the results of the members of the integrated group.
The Circular, provides with some guidance concerning the application of the profit-sharing bonus tax regime, notably with respect to (i) mandatory reporting, (ii) the non-deductibility of social security contributions, as well as (iii) the situation of executive directors/managers and shareholders. As in respect of items (ii) and (iii) this updated version of the Circular is identical to the former version, please refer to our previous newsletter for further information on this.
Mandatory reporting
As a reminder, the previous version of the Circular introduced the obligation for the employer, to submit a detailed report, as prescribed by the Luxembourg tax authorities, to the appropriate tax office (i.e., the relevant RTS office) in charge of assessing payroll tax on the employee’s remuneration. Late filing or omission of filing of the form results in (i) the retroactive cancellation of the employee 50% income tax exemption and (ii) necessary adjustments, pursuant to the procedure applicable for withholding tax adjustments on salaries and pensions. Furthermore, the personal liability of the employer mandatorily in charge of withholding income taxes on salaries can be engaged.
The Circular further mentions the need to file a specific form in case of a profit-sharing bonus within an integrated group. This form includes, in particular, the list of the names, by employer, of the employees of the integrated group benefiting, during the concerned tax year, from the profit-sharing bonus regime. This form has to be filed together with a joint application from all companies who are members of the integrated group. This application must contain the name of the concerned Luxembourg company, its Luxembourg Trade and Companies Register number, its tax registration number, and must be signed by the legal representatives of all the companies who are members of the integrated group. The form and the joint application must be sent by the integrated group's parent company or by the integrated subsidiary company, at the time the profit-sharing bonus is made available, to the relevant RTS office for verification.
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