How to save taxes in Luxembourg?

Updated: Jul 5, 2021


Deduct your expenses to reduce your taxes

In order to reduce taxes, every taxpayer can deduct from his or her taxable income certain expenses incurred during the tax year. These deductions will enable him to reduce his tax liability. This is one of the keys to tax optimisation.


Les principales dépenses déductibles des revenus


These expenses fall into two main categories: special expenses and extraordinary expenses.

Special expenses are private expenses that, in principle, affect the majority of people (insurance, housing savings, old age pension, etc.) and are capped according to the nature of the expense and the number of people in the household. Extraordinary expenses, on the other hand, correspond to expenses incurred when an exceptional and unavoidable event occurs (illness, parents in difficulty, childcare costs, etc.) and are capped according to the amount of taxable income and the composition of the household.

These deductions make it possible to reduce income tax, depending on the situation of each taxpayer.



Special expenses


Insurance contributions


Premiums and contributions paid to insurance companies are deductible. These are premiums for:

Civil liability insurance ;

  • Life insurance

  • death and disability insurance

  • Outstanding balance insurance;

  • Mutual insurance or complementary health care.

The amount of the deduction is limited to € 672,00 per dependent in the household. In the case of a single premium in the case of outstanding balance, the deductibility limit is increased according to the age and composition of the household.


Complementary pension insurance plan


Retirement provision includes various formulas, offered by banks and insurance companies, which allow for the financing of personal retirement. The minimum duration of the contract is 10 years and the withdrawal is possible as a life annuity or as a capital sum (limited to 50% for the capital withdrawal). The amount of the deduction is limited to € 3.200,00.


Building society premiums


Premiums paid to building societies also give rise to a tax deduction. The amount of the deduction is limited to € 1344.00 for persons between 18 and 40 years of age, and € 672.00 for persons over 40 years of age (per dependent in the household). Up to the age of 40 at the beginning of the tax year, taxpayers can benefit from a deductible limit of € 1344,00.


Group insurance supplementary pension scheme


If the employer subscribes to a supplementary pension scheme for employees and the employees pay an additional personal contribution, this will be tax deductible up to a maximum of € 1.200,00 per year.


Social security contributions


As salaries are declared gross, the contributions paid to the Centre Commun de la Sécurité Sociale as part of the compulsory affiliation are deductible.


Debit interest


Debit interest on personal loans is deductible, regardless of the reason for the loan. The amount of the deduction is limited to € 672.00 per dependent in the household. This deductible limit is shared with the personal insurance premiums.

The interest on real estate loans for the acquisition of a principal residence is also deductible, but it is a matter of obtaining the loan and not a special expense.


Donations


Donations made to associations recognised as being of public utility are deductible, however the sum of the donations may not be less than € 120.00 nor more than € 1,000,000.00 and may not exceed 20% of the total net income.


Deductions related to the family situation


Alimony granted to a divorced spouse and decided by a judgement with a maximum ceiling of € 24.000,00 is deductible.


Minimum lump sum for special expenses


The law* states that a minimum deduction, called the flat-rate minimum, is automatic for certain special expenses. This minimum lump sum is set at :

480.00 per taxpayer ;

960.00 for spouses who are taxed jointly and each receives income from an employed occupation.

If the actual special expenses exceed the minimum flat rate, the actual amount is deducted.


* Article 113 of the Income Tax Act


Extraordinary expenses


Extraordinary expenses are defined as expenses that are unavoidable for material, legal or moral reasons and that considerably reduce the ability to pay. These are mainly expenses related to :


  • An obligation to bring up children or to maintain needy relatives;

  • Sickness costs not covered by a fund (invalidity, infirmity, serious accident);

  • Funeral expenses;

  • Expenses resulting from a change of profession;

  • Sudden and unforeseeable events (flood, fire, theft) not covered by personal insurance.


The deductibility of these expenses is subject to two criteria: the amount of taxable income and the composition of the household.

For dependent children who are no longer part of the household, the taxpayer is entitled to a maximum allowance of €4,020 per child. The costs of care or domesticity are deductible up to a maximum of € 5,400.00.


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