Participation Bonus Scheme (Article 115-13a LIR)
1. Concept and legal basis
Since the 2021 tax year, businesses that realise commercial, agricultural, forestry or independent-professional income may, on a purely discretionary basis, grant one-off cash bonuses—called participation bonuses—to selected employees.
The rules are laid down in Article 115-13a of the Luxembourg Income Tax Law (LIR) and were reinforced by the Budget Law of 20 December 2024, which applies to any bonus made available on or after 1 January 2025.
2. Tax treatment
| Beneficiary | Tax effect | Social-security treatment |
|---|---|---|
| Employer | 100 % of the bonus is deductible for corporate-tax / personal-income-tax purposes in the year it is booked as an expense. | No special rule—normal employer charges apply. |
| Employee | 50 % of the gross amount is exempt from income tax; the remaining 50 % is included in taxable income. | The full amount remains subject to Luxembourg social-security contributions. |
3. Quantitative limits
3.1 Individual ceiling (per employee)
- 2025 and later: 30 % of the employee’s annual gross salary excluding benefits in kind.
- Until 31 December 2024: 25 %.
Worked example (2025)
Annual gross pay (excluding benefits): €78 000
Maximum bonus: 30 % × €78 000 = €23 400
→ €11 700 is taxable, €11 700 is tax-exempt.
3.2 Corporate ceiling (all bonuses combined)
- 2025 and later: 7.5 % of the preceding financial year’s accounting profit.
- Until 31 December 2024: 5 %.
Worked example (2025)
2024 profit before tax: €350 000
Maximum distributable pool: 7.5 % × €350 000 = €26 250
The total of all participation bonuses for 2025 cannot exceed this amount.
If the company belongs to a Luxembourg fiscal group, the 7.5 % limit may be calculated on the consolidated group profit, provided a joint written request is filed with the tax authorities.
4. Eligibility & administrative requirements
| Condition | Key points |
|---|---|
| Regular bookkeeping | The employer must keep accounts compliant with Luxembourg GAAP or IFRS. |
| Qualifying employer categories | Profits must arise from commercial, agricultural, forestry or independent-professional activities. Liberal professions are specifically covered. |
| Payroll identification | The line item on the payslip must read “Prime participative / Participation bonus”. |
| Electronic filing | On the date the bonus is made available, the employer must upload an updated Excel form (version 2025) via the OTX portal to the competent RTS tax office, listing each beneficiary and the respective amount. |
5. Practical timeline for a 2025 bonus
| Step | Target date | Action |
|---|---|---|
| Board / management decision | Any time in 2025 | Approve allocation criteria and maximum envelope. |
| Employee communication | Shortly after the decision | Inform eligible staff in writing. |
| OTX submission | Same day the bonus is paid or credited | Upload the completed Excel template to RTS. |
| Payroll processing | Regular pay run | Flag the bonus line, apply 50 % wage-tax exemption and withhold social charges on 100 %. |
| Corporate-tax return | FY 2025 filing (due 31 May 2026 for calendar-year companies) | Deduct the full amount in the tax computation. |
