What are the benefits in kind?
Before talking about the different benefits in kind, we need to answer a fundamental question: what is in-kind income? Well, let's get to it.
Benefits in kind are an interesting option for both employees and companies. For employees, benefits in kind represent additional advantages without necessarily implying higher taxes compared to an equivalent salary increase. For companies, they are interesting as they help attract and retain talent, increase job satisfaction and position the organization as a competitive employer.
However, although they are an interesting option for both parties, given that benefits in kind are strictly regulated, it is important to follow the guidelines of these regulations. Some of the most relevant points of these are the following:
- ✍️ Clear definition in the contract: it is essential that the employment contract expressly provides for a detailed account of the amount of both cash remuneration and the value of remuneration in kind.
- 💶 Compatibility with the minimum wage: the employer can deduct the value of benefits in kind from the minimum wage, provided that this deduction and the value of the benefit are stipulated in the contract and the sum of the cash remuneration plus the value of the benefits in kind is not less than the minimum wage.
- 📊 Taxation: benefits in kind are subject to tax, although the way they are treated varies according to the type of benefit.
- 🏦 Social Security contributions: benefits in kind are considered taxable income and in most cases are subject to social security contributions. This means that both the employer and the employee must include them in the calculation basis for contributions.
- 💼 Maintenance during the notice period: in the event of termination of the employment contract and during the notice period, the employee is entitled to retain his or her salary and benefits in kind. However, if the notice period is not observed, the employee cannot claim to maintain the benefits without the employer's agreement.
- 🚗 Personal vs. Professional use: in the case of certain benefits such as company cars or electronic devices, it is essential to differentiate between personal and professional use and to clearly establish what type of use the employee can make of these benefits, as this will affect the valuation and tax treatment.
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Learn moreMain benefits in kind in Luxembourg
Moving on, we will look at the main benefits in Luxembourg and some important details about each of them, but before that, let's review what the statistics say about the main types of benefits in kind in Luxembourg.
The latest STATEC data on this subject comes from a report published in 2019 based on the situation in the country in 2018 and reveals that in Luxembourg 26% of employees enjoy benefits in kind, although the weight of this type of remuneration is quite marginal, representing only 1.4% of total remuneration. According to this study, the three most common benefits were luncheon vouchers or free meals (18%), a company car for private use (8%) and payment of transportation or parking expenses (5%).
Furthermore, as expected, there are significant inequalities between the different types of professions. In 2018, the proportion of managers who received part of their remuneration in kind was 48%, that of employees in higher intellectual professions was 40%, that of technicians and employees in intermediate professions was 33%, that of administrative staff was 26% and, finally, that of manual workers was only 12%.
Meals 🍽️
One of the most common benefits, as reflected in STATEC data, is the possibility offered by companies to employees to eat in the company restaurant or to have restaurant vouchers that can be used in catering establishments outside the company or in shops to buy food. In this case, the tax value applied is around 2.80 euros per meal or per restaurant voucher.
Company car 🚘
The provision of a vehicle for the employee's professional and private needs is a rather attractive benefit in kind and is generally offered to managers and some employees with higher intellectual professions or to sales representatives, as the latter have to travel to their clients' premises quite frequently.
In this regard, it is important to underline the fact that for the vehicle to constitute a benefit in kind, it must be available for private use, as a company car that is only used for business trips does not constitute a benefit in kind. It is also important to consider that the use of the company car for commuting between home and work gives rise to the concept of a benefit in kind.
Employees who have a company car for their personal needs will have to pay taxes and social security contributions for this benefit. To calculate the taxes, it is necessary to multiply the VAT-included new value of the vehicle by a certain percentage. Until 2024, this percentage varied according to the type of engine and the CO2 emissions rate of the vehicle, but from 2025 it only depends on whether it is a thermal vehicle, in which case it is 2%, or if it is electric, in which case it is 0.5% for electric vehicles of less than 18kWh/100 km and 0.6% for the rest.
Professional parking spaces 🅿️
Parking spaces in Luxembourg are increasingly expensive, so having a parking space is a considerable advantage. These parking spaces are generally reserved for managers and in some cases are extended to other employees, such as those working in shopping centers.
According to the Confédération syndicale indépendante du Luxembourg (OGBL) workers at most shopping centers in Luxembourg enjoy free parking, although this is not always the case, such as the employees of the Cloche d'Or shopping center who do not have it or those of the Kirchberg Shopping Center who must pay 176 euros per month from 2022 onwards after 26 years of having it for free.
Accommodation 🏠
With housing prices reaching stratospheric levels in Luxembourg, this benefit is undoubtedly one of the most attractive. The evaluation of this benefit depends on whether the accommodation is rented or owned by the employer according to the following scheme:
- Rented by the employer: amount of the rent or, if the rent is excessive, 25% per month of the unit value of the accommodation with a limit of 75% of the rent.
- Owned by the employer: at least 25% of the monthly unit value of the home, with a minimum of 8 euros/m² for an apartment/studio or 7 euros/m² for other types of housing.
- Rented by the employee and reimbursed by the employer: amount of the rent.
In addition, the employer's share of the running costs of the accommodation, such as heating, water and electricity, must be added to the benefit at its actual amount and, if the accommodation is furnished, the monthly value of the benefit must be increased by 10%.
School fees for employees' children 🎓
Some companies offer expatriate employees expatriation packages that include the payment of all or part of the schooling expenses of the employee's children. For the calculation of taxes and social security contributions, the value of the benefit in kind granted is calculated on the amount of the expenses disbursed by the employer.
Company profit-sharing and incentive plans 💰
A common incentive is profit-sharing plans that allow employees to benefit directly from the company's performance through the allocation of company shares or stock options (forward stock purchase options).
These shares are taxed at the time of their transfer using as a basis the market value minus the price eventually paid for their acquisition and minus a discount on this market price if a blocking period is provided for in the profit-sharing plan.
