Updated on
11/03/2025
Overtime Tax Credit (CIHS)
What is the CIHS? — The CIHS (Crédit d'Impôt Heures Supplémentaires) is a tax credit introduced to compensate employees who lose part of their income due to taxation on overtime pay in their country of residence. It was designed to maintain Luxembourg's attractiveness for cross-border workers and offers a maximum tax credit of 700€ per year.
Why was the CIHS introduced? — The CIHS addresses a specific tax challenge for employees who:
- Reside in a country with a double taxation agreement with Luxembourg.
- Are taxed on their overtime pay in their country of residence, even though this income is exempt in Luxembourg.
The goal is to offset this financial loss and support cross-border workers, ensuring their net income is not unfairly diminished by double taxation effects.
Who is eligible for the CIHS? — To qualify for the CIHS, individuals must:
- Be employed in Luxembourg and earn overtime pay exempt in Luxembourg under Article 115 of the income tax law.
- Be a resident of a country with a double taxation agreement with Luxembourg.
- Not be a civil servant, state employee, or intern under Luxembourg's civil servant statutes.
- Be subject to taxation on their overtime pay in their country of residence.
How is the CIHS calculated? — The CIHS is calculated based on annual gross overtime pay:
- Less than 1200€ annually: No credit is granted.
- 1200€ to 4000€ annually: CIHS = (Gross Overtime Pay − 1,200€) × 25%
- More than 4000€ annually: The CIHS is capped at 700€ per year.
Example:
- Gross overtime pay of 2000€:
- (2000€ − 1200€) × 25% = 200€ CIHS.
- Gross overtime pay of 5,000€: The CIHS is capped at 700€.
How is the CIHS claimed?
- The CIHS is deducted directly from the annual tax liability.
- If the taxpayer has insufficient tax liability, the tax office (ACD) will reimburse the CIHS after the tax year.
- Taxpayers must submit a request as part of their tax assessment or annual tax return to claim the CIHS.
What are the limitations of the CIHS?
- The gross overtime pay must exceed 1,200€ annually to qualify.
- The maximum credit is 700€ per year, regardless of the total overtime income.
- Employees whose country of residence already provides a specific exemption for overtime pay are not eligible.
Why is the CIHS important? — The CIHS supports cross-border workers who might otherwise face double taxation on their overtime income. It ensures tax fairness and preserves Luxembourg's competitiveness as an employer-friendly destination, particularly for frontier workers from neighboring countries.
Synonyms: Crédit d'Impôt Heures Supplémentaires, Overtime Tax Credit, Supplementary Hours Tax Credit.