Luxembourg

Employment expenses

Income-related expenses are normally deductible.

Employees benefit from minimum standard deductions of EUR 540 for job-related expenses. These deductions are doubled if the spouse/civil partner is also employed. If expenses for tools, specific work clothes, and so on, exceed the minimum, the actual expenses may be deducted. Commuting expenses between home and place of work are tax deductible, at a maximum of EUR 2,574 per year.

Compulsory Luxembourg and foreign legal social security contributions covered by a social security treaty are also tax deductible.

Employee’s contributions to a qualifying employer-provided pension scheme are tax deductible up to a limit of EUR 1,200 per year.

Personal deductions

Non-residents can deduct only expenses related to income subject to Luxembourg taxation.

Residents may deduct extraordinary charges for sickness, accidents, living costs of parents, and so on, to the extent that they exceed a certain percentage of their taxable remuneration.

In addition to the following, specific deductions are also available, notably for kindergarten costs and domestic help.

Insurance premiums and interest expenses

For residents, certain premiums paid for life, sickness, accident, disability, and third-party liability insurance, as well as interest arising on personal loans (contracted to purchase a car, furniture, and so forth), are deductible, up to EUR 672 increased by the same amount for jointly taxable spouses/civil partners and each dependent child. This allowance is increased for a one-time premium for death insurance subscribed to assure the reimbursement of a loan taken out for the purchase of a house. The related tax deduction varies with the age of the taxpayer.

Under specific conditions, insurance premiums paid within the context of a private pension scheme qualifying under Luxembourg tax law are also tax deductible up to EUR 3,200. The deduction applies to each spouse/civil partner, provided both are covered by a private pension insurance contract.

Home ownership savings plan

Certain contributions to home ownership savings plans are deductible, up to EUR 672 (or EUR 1,344 for individuals up to 40 years of age) increased by the same amount for jointly taxable spouses/civil partners and each dependent child.

Standard deductions

A minimum standard deduction of EUR 480 is granted for the above expenses; it is doubled if the spouse/civil partner is also employed.

A minimum lump-sum allowance of EUR 25 is deductible from income from capital and investments subject to progressive tax rates. The minimum lump-sum allowance is doubled in the case of collectively taxed spouses/civil partners if both earn income from capital and investments. Actual expenses exceeding this lump-sum allowance can be deducted.

Personal allowances

Jointly taxable spouses/civil partners who both exercise a professional activity taxable in Luxembourg benefit from a lump-sum allowance of EUR 4,500.

Non-resident taxpayers

Non-resident employees may deduct compulsory social security contributions and contributions to an employer-provided supplementary pension scheme, as well as the standard deduction of EUR 480.

In addition, if at least 90% of the personal worldwide income derived by a non-resident (or 50% of the professional income of the household for Belgium resident) is taxable in Luxembourg, the taxpayer may opt to be treated as a resident for tax purposes, thus benefiting from the same deductions and allowances as a resident. The tax rate applied to Luxembourg-source income is then determined on the basis of the taxpayer’s households total worldwide professional income.

Extraordinary expenses

Extraordinary charges are tax-deductible only if they exceed the 'normal charge' of the household as determined by Luxembourg tax law. The costs incurred should be unpredictable, unforeseeable, and reduce the ability to pay income tax during the year (e.g. medical expenses not reimbursed by the CNS or a mutual fund, legal fees, etc.).

In addition, the costs of childcare, household employees, and home assistance for disabled individuals are deductible. As per the 2023 Budget law, the tax deduction for the contribution for child maintenance where the child is not part of the taxpayer’s household is set to increase from EUR 4,020 to EUR 4,422.

Two methods of calculation:

• Normal charge method (the deduction will depend on your family situation and your level of taxable income).
• Lump-sum deduction with a cap of EUR 5,400 on a yearly basis (only applicable for childcare, household employees, and home assistance for disabled individuals).

Losses

Capital losses can be offset only against capital gains in the same year (only short terms).