Do you pay income tax in Luxembourg and want to reduce your tax burden? You can save money by deducting certain expenses from your tax return. Find out more here.
Who can benefit from tax deductions?
When you first arrive in Luxembourg and have to declare your taxes for the first time, personal taxation can be quite complex. Taxpayers can benefit from tax deductions.
To benefit from these tax deductions, the taxpayer must be resident in Luxembourg, or "assimilated Luxembourg resident" if non-resident. This is particularly the case for cross-border workers who live outside Luxembourg, but work in Luxembourg.
However, to be "assimilated", the non-resident taxpayer must meet a certain number of conditions:
- receive at least 90% of their income from Luxembourg
- receive less than 13,000 euros in annual income from a country other than Luxembourg
- in the case of teleworking, income received "outside Luxembourg" will only be assimilated to Luxembourg income up to a maximum of 50 days.
Non-Belgian residents benefit from assimilation, if more than 50% of the household's professional income comes from Luxembourg. However, they must comply with the 50-day rule, otherwise the Belgian social security system will apply if they work more than 25% of their time from Belgium.
What deductions can you make to optimize your tax situation?
To optimize their tax situation, taxpayers can deduct a number of expenses from their income on their annual tax return .
Savings depend on income, and apply to both singles and couples, regardless of tax class.
There are several possible tax deductions:
- certain expenses related to salaried employment
- certain expenses for self-employed taxpayers
- certain insurance costs
- childcare costs
- the cost of hiring household staff
- interest on personal or property loans
- home savings
- retirement provision
- divorce annuities
- donations
- ...
Employment-related tax deductions
Tax deductions for employees
Each employee is entitled to a flat-rate deduction of 540 euros a year for business-related expenses. This deduction is made directly by the employer on the employee's payslip .
In addition, the employee can deduct certain expenses, based on receipts, if they exceed the 540 euro flat rate:
- travel expenses
- costs of obtaining the insurance, with an additional charge for employees suffering from a disability or infirmity.
Tax deductions for self-employed workers
Self-employed persons may deduct from their income :
The following contributions are tax-deductible as special expenses:
- compulsory social security contributions for health insurance, pension insurance and accident insurance
- contributions paid for continued insurance, voluntary or optional
- personal and family contributions paid to the Mutualité des Employeurs.
Deduction of insurance costs and interest
Certain types of insurance are compulsory in Luxembourg. However, these insurance costs can be optimized on your tax return. You can deduct premiums paid for the following insurances from your income:
- third-party liability car insurance
- life insurance
- liability insurance
- supplementary health insurance.
In addition, you can deduct from your income any interest expense related to :
- personal loans
- interest earned on credit cards
- overdraft interest.
These insurance and interest costs are deductible per household on presentation of proof by the institutions, up to a limit of 672 euros per household member, including children. A family with two parents and two children could therefore deduct 2,688 euros.
Deduction of pension costs
By building up capital toincrease your income when you retire, you can deduct up to 3,200 euros per person in annual premiums paid into a private pension plan.
For a couple, this deduction applicable on the tax return amounts to a total of 6,400 euros on proof. This represents a saving of up to 20% for a couple.
All you need to do is take out a pension savings contract for a minimum of 10 years, with the contract maturing between the ages of 60 and 75.
To find out more, contact your insurance company or ask your bank for more information.
Optimize your tax situation by owning your own home
Tax deduction for interest expense on home loans
When you finance your home with a mortgage, you can deduct the interest charges on your tax return. The deduction limit depends on the date you moved in and the composition of your household. Deductions are degressive according to the number of years you've lived in the property (5 years or less, between 6 and 10 years, more than 10 years).
In the year of purchase, interest charges on a VEFA property are fully deductible. This is also the case for a dilapidated property in need of major renovation.
For the 2023 tax year, tax deductions amount to a maximum of 3,000 euros per person for the first 5 years, 2,250 euros between 6 and 10 years and a maximum of 1,500 euros per person from 10ns onwards.
From tax year 2024, these amounts are increased to 4,000 euros per person for the first 5 years, 3,000 euros between 6 and 10 years and 2,000 euros maximum from 10 years onwards.
Note that interest subsidies are deducted from the amount of deductible interest.
However, notary fees and bank charges and commissions can also be deducted from the tax return.
Deduction of premiums paid into home savings schemes
Epargne logement is an investment with a minimum term of 10 years, enabling you to finance the acquisition or conversion of your home in Luxembourg or abroad. The capital can also be used to repay a mortgage.
The maximum deduction is 672 euros per household member, or 2,688 euros for a 4-person household. This deduction is doubled for household members aged between 18 and 40, to encourage home ownership.
Would you like to find out more about buying your own home and how to finance it? Contact your bank for more information.
Tax optimization for domestic expenses
You can also deduct a maximum of 5,400 euros per household per year from your tax return, to help your family and your household run smoothly.
- household staff costs
- childcare costs in private and public childcare facilities.
Tax deductions for annuity payments
Taxpayers can also deduct a number of annuity payments from their income, including :
- alimony or maintenance payments to a divorced spouse
- life annuities.
The ceilings vary according to the type of annuity paid during the year.
Tax deductions for donations
Donations and gifts to associations, charitable organizations and cultural bodies are also tax-deductible.
To achieve this, the total amount of donations and gifts made during the year must exceed 120 euros, and may not exceed 1,000,000 euros or 20% of the taxpayer's net income.
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