Updated on
12/03/2025
Profit-sharing bonus
What is the profit-sharing bonus? — The profit-sharing bonus (Prime participative) is a bonus introduced in 2021 that employers can allocate to their employees based on the company's positive financial results. Under certain conditions, 50% of this bonus is tax-exempt. Starting in 2023, this bonus can also be calculated based on the combined positive results of the integrated group to which the employer belongs.
What are the key conditions for tax exemption? — To benefit from the 50% tax exemption, the following cumulative conditions must be met:
- Employee eligibility:
- The employee must be affiliated with a social security system under Luxembourgish or international agreements as a mandatory insured person.
- Limit on exemption:
- The tax-exempt portion cannot exceed 25% of the employee's annual gross salary, excluding cash and in-kind benefits.
- Employer profitability:
- The employer must generate one of the following profits:
- Commercial profit
- Agricultural and forestry profit
- Profit from a liberal profession
- The employer must generate one of the following profits:
- Accounting standards:
- The employer must maintain regular accounting records for both the fiscal year in which the bonus is granted and the preceding fiscal year.
- Bonus allocation cap:
- The total amount of the profit-sharing bonus allocated cannot exceed 5% of the company's positive resultsfrom the previous fiscal year.
- Employer reporting:
- Employers must submit a nominal list of employees receiving the bonus to the competent tax authority (RTS) at the time of disbursement, ensuring all exemption conditions are met.
- Group integrated exception (from 2023):
- For integrated groups, the 5% cap can be calculated based on the combined positive results of the group members. This requires an annual joint request from all members of the integrated group.
How is the profit-sharing bonus paid? — The bonus is typically paid as a lump sum in addition to the employee's regular salary. It must be clearly identified as a "prime participative" on the payslip to qualify for the tax exemption.
Who decides which employees receive the profit-sharing bonus? — The employer has discretion regarding which employees receive the bonus and in what amount, provided they adhere to the general principles of non-discrimination and the specific caps related to the scheme.
What changes to the profit-sharing bonus are coming in 2025? — To create an environment that attracts and retains young talent and boosts national competitiveness, the profit-sharing bonus scheme will be reinforced in 2025 as follows:
- Increased employee exemption limit:
- The tax-exempt portion of the bonus increases from 25% to 30% of the employee's annual gross salary (excluding cash and in-kind benefits).
- Higher bonus allocation cap:
- The cap on the total amount of the profit-sharing bonus is raised from 5% to 7.5% of the company's positive results from the previous fiscal year.
What are the benefits of the profit-sharing bonus for employers? — The scheme offers employers a tax-efficient way to reward employees while enhancing motivation and retention. It creates a direct link between company performance and employee compensation, potentially boosting productivity and engagement.
What are the benefits of the profit-sharing bonus for employees? — Employees benefit from additional compensation with favorable tax treatment. The 50% tax exemption means they receive more net income than they would from an equivalent amount of regular salary.
Why is the profit-sharing bonus important? — The profit-sharing bonus incentivizes employees and aligns their efforts with company performance. By offering partial tax exemptions, it serves as a tool to attract and retain talent, ensuring Luxembourg remains competitive in the global workforce market.
Synonyms: Profit-sharing bonus, participative bonus, "Prime participative" tax exemption, performance-based tax-exempt bonus.