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Luxembourg introduced a type of employment-related profit-sharing plan (prime participative) based on the employer's financial results (profits) from tax year 2021 onwards (Circular LIR No 115/12 of March 8, 2021).

Up to 50% of the profit-sharing plan bonus is not taxable on the employee under Luxembourg domestic legislation (LIR, Art 115(13a)). Additionally, the discretionary employee bonus is a tax-deductible operating expense for the employer, together with the costs of operating the scheme.

Participating employers can reward certain employees through the scheme entirely at their discretion, including executive managers, statutory directors and shareholders (FAQs).

There are qualifying conditions for the profit-sharing scheme for the employer, and employee.

The employer must make a profit in the tax year and have business accounts for the tax year the bonus is granted and the immediately preceding year.

The total amount of bonus that can be granted under the scheme