Updated on
02/12/2025
Profit-sharing bonus
What is a profit-sharing bonus? — A profit-sharing bonus (prime participative) is a discretionary cash bonus that Luxembourg employers can grant to employees based on the company's positive financial results. Introduced in 2021, this bonus benefits from a 50% tax exemption when specific conditions are met, making it an attractive compensation tool for both employers and employees.
Who can receive a profit-sharing bonus? — Any employee affiliated with Luxembourg's social security system can receive this bonus. The employer decides which employees receive the bonus and how much, as long as they follow fair treatment principles and stay within the legal limits.
What are the conditions for the 50% tax exemption? — To qualify for the tax exemption, you need to meet these requirements:
- Your company must have made a profit in the previous year
- You must keep regular accounting records
- The bonus must be clearly marked as "prime participative" on employee payslips
- You must report the bonus to your RTS tax office when you pay it out
What are the maximum limits? — There are two caps that work together:
- Per employee (from 2025): The tax-exempt portion cannot exceed 30% of the employee's annual gross salary (excluding benefits). Before 2025, this limit was 25%.
- Per company (from 2025): The total bonuses you distribute cannot exceed 7.5% of your company's profit from the previous year. Before 2025, this was 5%.
Can company groups combine their profits for the calculation? — Yes, if your company is part of an integrated group (multiple related companies), you can calculate the 7.5% limit based on the combined profits of all group members. This requires submitting a joint annual request signed by all group companies to your RTS tax office.
How do I report the bonus to tax authorities? — You must submit a list of employees receiving the bonus to your RTS tax office when you pay it out. This is done electronically using a secure system called OTX. You cannot send this by regular email for security reasons. Contact your RTS office to get access to the secure upload system.
What if an employee leaves during the year? — If an employee leaves mid-year or changes their working hours, you must recalculate the tax-exempt portion based on their actual annual salary. The 30% limit applies to what they actually earned, not their full-year theoretical salary. This may require adjusting the withholding tax.
What changed in 2025? — The scheme was improved starting January 1, 2025:
- Employee limit increased from 25% to 30% of annual salary
- Company limit increased from 5% to 7.5% of profits
- These changes make the bonus more attractive for retaining talent in Luxembourg
Why use profit-sharing bonuses? — This bonus gives you a tax-efficient way to reward employees based on company performance. It helps attract and retain talent, motivates employees by linking rewards to results, and strengthens the connection between company success and employee compensation.
What's the benefit for employees? — Employees receive extra compensation with favorable tax treatment. The 50% tax exemption means they keep much more of this bonus compared to a regular salary increase. For example, a €10,000 profit-sharing bonus results in higher net income than a €10,000 salary increase.
Can company owners receive this bonus? — Yes, if a shareholder or company officer receives a salary from the company, they can receive the profit-sharing bonus with the same tax exemption, even if they're the only employee getting it.
Synonyms: Prime participative, participation bonus, profit-sharing scheme, performance-based tax-exempt bonus