Tax Deductions in Luxembourg: How to Reduce Your Taxes?
Would you like to pay less in taxes in Luxembourg? Many expenses can be deducted from your taxable income under certain conditions. Insurance, retirement savings, mortgages, childcare costs, donations, and alimony: these measures allow you to legally reduce your tax liability and optimize your tax return.
For expats and newcomers, Luxembourg’s tax rules may seem complex. However, knowing the main tax deductions can save you several hundred, or even several thousand euros, each year.
This page outlines the main deductible expenses in Luxembourg, the applicable limits, and the steps you need to take to claim them.
Key Points for Expats on Tax Deductions
- Tax deductions reduce the taxable income used to calculate your tax liability.
- Insurance, pension savings, mortgage interest, and certain family-related expenses are among the most commonly deductible expenses.
- Filing a tax return can be beneficial even when it is not mandatory.
- Supporting documents must be retained in order to respond to a request from the tax authorities.
- Certain deductions are subject to limits that change regularly.
Who is eligible for tax deductions in Luxembourg?
Tax deductions primarily apply to taxpayers subject to taxation in Luxembourg. They reduce the taxable income used by the tax authorities to calculate the tax owed.
The amount of savings you realize depends largely on your income level, your family situation, and the expenses incurred during the tax year.
In some cases, filing a tax return can be particularly beneficial to claim these expenses and receive a favorable adjustment.
Not sure if you need to file a return? Check out our guide: Do I need to file a tax return in Luxembourg?
What expenses can you deduct from your taxes in Luxembourg?
Luxembourg provides for several categories of expenses that can be included in your tax return.
| Category | Examples of Expenses | Who it applies to |
|---|---|---|
| Insurance and interest expenses | Life insurance, liability insurance, supplemental health insurance, interest on personal loans | All taxpayers |
| Retirement planning | Pension or retirement savings plan | All taxpayers |
| Home savings | Home savings plan | Individuals planning a real estate project |
| Mortgage | Interest expenses on the mortgage | Homeowners |
| Family and children | Childcare expenses, domestic staff | Families with children or declared domestic staff |
| Alimony and annuities | Alimony paid to a former spouse, certain annuities | Taxpayers affected by a separation or certain legal obligations |
| Donations and gifts | Donations to recognized public benefit organizations | All taxpayers |
| Self-employment | Social security contributions and certain business expenses | Self-employed individuals |
Key figures: tax deductions
- Up to €3,200 per person can be deducted annually for retirement savings.
- Up to €672 per household member may be claimed for certain insurance premiums and interest expenses.
- Household and childcare expenses may be deductible up to €5,400 per household per year.
- Donations are deductible starting at €120 per year under certain conditions.
- Home savings plans qualify for specific deduction limits based on age and household composition.
Insurance and interest expenses: the most common tax deductions
Premiums paid for certain insurance policies may be deducted from taxable income within the limits set by Luxembourg tax regulations.
The most common policies include:
- auto insurance;
- liability insurance;
- certain life insurance policies;
- certain supplemental health insurance policies.
Interest expenses related to certain personal loans, consumer credit, or bank overdrafts may also be taken into account within certain limits.
To better understand the insurance coverage available in Luxembourg, see our guide: Everything You Need to Know About Insurance in Luxembourg.
Retirement planning: preparing for retirement while reducing your taxes
Retirement planning isone of the most advantageous tax schemes for Luxembourg residents. It allows you to financially prepare for retirement while benefiting from an immediate tax deduction.
Premiums paid under an approved retirement savings plan may be deducted from taxable income within the limits set by Luxembourg tax law.
Upon maturity of the contract, the lump-sum payment or annuity received will supplement income from the statutory pension scheme.
To better plan for your retirement, also consult our guide on retirement and old-age pensions in Luxembourg.
Home savings: a tax benefit to finance a real estate project
Home savings allow you to gradually build up capital to finance a real estate project while benefiting from a tax advantage.
Amounts paid into certain home savings contracts may be tax-deductible within the limits set by regulations. The applicable limits depend, in particular, on the subscriber’s age and household composition.
This type of plan can be used to finance:
- the purchase of a home;
- the construction of a home;
- renovation or remodeling work;
- the repayment of a mortgage.
Are you considering buying real estate in Luxembourg? Check out our guide: Buying Real Estate in Luxembourg.
Are mortgage interest payments tax-deductible?
Yes. Under certain conditions, interest expenses related to a mortgage can be deducted from your taxable income.
This deduction primarily applies to homeowners who occupy their primary residence.
The deductible amount depends, in particular, on:
- the date the property becomes available;
- the composition of the household;
- the amount of interest actually paid;
- any assistance or subsidies already received.
Mortgage interest is often one of the most significant tax deductions for new homeowners.
Costs related to mortgage financing may also, in some cases, qualify for additional tax benefits.
Childcare costs and domestic staff
Luxembourg has several mechanisms in place to support families and promote work-life balance.
Certain expenses incurred for childcare may be claimed on the tax return.
These may include:
- daycare costs;
- daycare center fees;
- nanny fees;
- certain expenses related to private childcare.
Expenses related to the employment of domestic staff may also be deductible under certain conditions.
To better understand the childcare options available in Luxembourg, check out our guide: Daycare Centers and Childcare Options in Luxembourg.
Tax Deductions for Families
- Childcare expenses may qualify for tax deductions under certain conditions.
- Household staff expenses may be taken into account up to several thousand euros per year, depending on the household’s situation.
- Receipts must be kept for all reported expenses.
- Expenses must generally have been actually paid during the relevant tax year.
Alimony and Annuities
Certain alimony payments and certain annuities may be deducted from taxable income.
This applies primarily to taxpayers who pay:
- alimony to a former spouse;
- certain life annuities;
- other periodic payments provided for by tax law.
The applicable limits and conditions vary depending on the nature of the payments and the taxpayer’s circumstances.
The tax consequences of a separation, divorce, or change in family status can be significant. See also our guide on types of unions and their tax implications in Luxembourg.
Are donations to recognized organizations tax-deductible?
Yes. Donations made to recognized public-benefit organizations or certain foundations may qualify for a tax deduction.
To be eligible, donations must meet the conditions set by the Luxembourg tax authorities.
In particular, the taxpayer must be able to provide the certificates issued by the recipient organization.
Donations are a way to support charitable, cultural, educational, or humanitarian projects while enjoying a tax benefit.
How do you report deductible expenses?
Deductible expenses are generally reported when filing the annual tax return.
Each category of expense must be listed in the corresponding section and supported by supporting documents if requested by the tax authorities.
To understand the different steps of the process, consult our practical guide to filing taxes in Luxembourg.
What supporting documents should you keep for your tax deductions?
It is strongly recommended that you keep all documents supporting the expenses you have claimed.
| Type of expense | Documents to keep | Examples |
|---|---|---|
| Insurance | Certificate from the insurance company | Life insurance, liability insurance, supplemental health insurance |
| Retirement savings | Annual statement | Pension contract |
| Mortgage | Bank statement | Interest paid |
| Custody fees | Bills and proof of payment | Daycare, after-school care, child care provider |
| Donations | Certificate from the recipient organization | Charitable organization |
Common mistakes to avoid losing your tax deductions
- Failing to keep receipts for reported expenses.
- Confusing tax deductions with tax credits.
- Forgetting certain expenses that are actually deductible.
- Claiming amounts without proper documentation.
- Failing to check the limits applicable to each category of expenses.
- Waiting until the last minute to prepare your tax return.
Do tax deductions really help you pay less in taxes?
Yes. Tax deductions reduce the taxable income used to calculate the tax owed.
The savings achieved depend on income level, tax bracket, and the amount of expenses claimed.
The higher your taxable income, the greater the potential impact of deductions.
For this reason, it is often helpful to plan your tax strategy throughout the year rather than just when filing your return.
Tax Deductions: Important
Limits, eligibility requirements, and calculation methods may change from year to year. Before filing your tax return, always verify the amounts and conditions applicable to the relevant year.
The information presented on this page is for informational purposes only and does not replace personalized advice from a tax professional.
Tax guides to consult based on your situation
- Understanding taxation in Luxembourg
- Do I need to file a tax return?
- Practical Guide to Filing Taxes
- Understanding withholding tax
- Taxation for couples and families
- Personal Income Tax in Luxembourg
Checklist: Before Filing Your Tax Return
□ Check your deductible insurance policies.
□ Gather your retirement savings certificates.
□ Verify mortgage interest.
□ Gather proof of childcare expenses.
□ Check for any donations made during the year.
□ Keep all proof of payment.
□ Check the applicable limits for the relevant year.
Legally reducing your taxes in Luxembourg: what you need to know
Tax deductions are one of the main ways to reduce your tax bill in Luxembourg. Insurance, retirement savings, housing, family expenses, or donations: many expenses can be claimed under certain conditions.
To fully benefit from these tax advantages, it is essential to keep your receipts, comply with the applicable limits, and complete your tax return correctly.
A good understanding of the available deductions often allows you to optimize your tax situation and avoid paying more taxes than necessary.
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