Guidance on the prime participative regime for companies forming a fiscal unity

The profit sharing bonus ("prime participative") has been introduced by the Luxembourg 2021 Budget Law of 19 December 2020 in order to keep Luxembourg attractive for talents. In this respect, Luxembourg companies can provide a prime participative to their employees, 50% of which is exempt from tax, as long as the prime participative does not exceed 5% of the positive result of the employer in the relevant year.

For more insight on this topic, please refer to our previous Newsletter.

On 23 December 2022, the 2023 Budget Law introduced to possibility for Luxembourg companies in a fiscal unity within the meaning of Article 164ter of the Luxembourg income tax law to opt for calculating the 5% limit based on the positive algebraic result of all companies forming part of such a fiscal unity.

In this respect, the Luxembourg tax authorities have issued a new Circular L.I.R. n°115/12 dated 27 February 2023 which replaces the former circular dated 8 March 2021 in order to provide further guidance related to this option ("Circular").

In particular, the Circular clarifies that the employer must file a specific form which includes inter alia the names of the employees of each company that forms the integrated group benefiting from the prime participative during the tax year. Such a form must be accompanied by a joint request from all members of the integrated group. The form and the joint request must be sent to the competent tax office by the integrating parent company or by the integrated subsidiary company, at the time the prime participative is made available.