Deductions from your income tax
Would you like to reduce your tax liability in Luxembourg? By deducting certain expenses from your tax return, you can make substantial savings. Here is an updated guide for the next tax return.
What are the conditions for benefiting from tax deductions?
Luxembourg's tax system can seem complex, especially for newcomers. Tax deductions are available to Luxembourg residents and equivalent non-residents, such as cross-border workers. To be considered equivalent, a non-resident must:
- earn at least 90% of their income in Luxembourg
- earn less than €13,000 in annual income from a country other than Luxembourg
- in the context of teleworking, income earned "outside Luxembourg" will only be treated as Luxembourg income for a maximum of 50 days.
Belgian non-residents are treated as equivalent if more than 50% of the household's professional income comes from Luxembourg. However, they must comply with the 50-day rule, otherwise they will be subject to the Belgian social security system if they work more than 25% of their working time from Belgium.
Tax deductions 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.
The savings made depend on the amount of income and apply to single people and couples, regardless of their tax bracket.
Several expenses can be deducted from your annual tax return:
- certain expenses related to salaried employment
- certain expenses for taxpayers who are self-employed
- certain insurance costs
- childcare costs
- costs related to hiring domestic staff
- interest on personal or real estate loans
- home savings
- retirement provisions
- alimony payments in the event of divorce
- donations
- ...
Optimize your tax situation in Luxembourg with advice from our expert.
Tax benefits related to employment
Tax-deductible expenses for employees
Each employee is entitled to a flat-rate deduction of up to €600 per year, known as the CIS or Employee Tax Credit. This is conditional on income of up to €80,000, above which it no longer applies. The CIS deduction is made directly by the employer on their employees' pay slips.
In addition, employees can deduct certain expenses upon presentation of supporting documents, if these exceed the flat rate of €540:
- travel expenses
- costs of obtaining a disability card, with an additional allowance for employees with a disability or infirmity.
Tax reductions for self-employed workers
People who are self-employed can deduct the following contributions from their income:
- mandatory social security contributions for health insurance, pension insurance, or accident insurance
- contributions paid for continued, voluntary, or optional insurance
- personal and family contributions paid to the employers' mutual insurance company.
Insurance costs and interest expenses: tax deductions
Certain types of insurance are compulsory in Luxembourg. However, these insurance costs can be optimized in your tax return. You can deduct the premiums paid for the following types of insurance from your income:
- civil liability car insurance
- life insurance
- civil liability insurance
- supplementary health insurance.
In addition, you can also deduct the interest expenses related to the following from your income :
- personal loans
- interest earned on credit cards
- overdraft interest.
These insurance and interest costs are deductible per household upon presentation of supporting documents from the institutions, up to a limit of €672 per household member, including children. A family with two parents and two children can therefore deduct €2,688.
Tax relief related to retirement planning
By building up capital to increase your income when you retire, you can deduct up to €3,200 per person in annual premiums paid into a private pension plan.
For a couple, this deduction applicable on their tax return amounts to a total of €6,400 upon presentation of supporting documents. This corresponds to a saving of up to 20% for a couple.
To benefit from this, you simply need to take out a retirement savings plan for a minimum of 10 years, with a maturity date between 60 and 75 years of age.
For more information, contact your insurance company or ask your bank for details.
Tax exemptions related to the purchase of a home
Deductible expenses on real estate loans
If you finance your home with a mortgage, you can deduct the interest expense on your tax return. The deduction limit depends on when your home becomes available.
- If your home is available from 2023 onwards, you can deduct the entire amount of interest paid.
- A deduction limit applies for homes available before this date: €4,000 per person (parents and children in the household) for homes available between 2020 and 2022 inclusive, $3,000 for each member of the household for availability between 2014 and 2029 inclusive, and $2,000 per person in the household for homes available before January 1, 2014.
It should be noted that interest subsidies are deductible from the amount of deductible interest.
However, notary fees and bank charges and commissions may also be deducted from the tax return.
Renting out social housing
As a social housing landlord, you are entitled to a 90% exemption on your rental income.
Deduction of premiums paid into home savings plans
Home savings are a minimum 10-year investment used to finance the purchase or renovation of a home in Luxembourg or abroad. The capital can also be used to repay a mortgage.
The maximum deduction is €672 per member of the household, or €2,688 for a household of four. This deduction is doubled for members of the household aged between 18 and 40 in order to encourage them to become homeowners.
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
To support your family and keep your household running smoothly, you can also deduct a maximum of €5,400 per household per year from your tax return .
- expenses related to domestic staff
- childcare costs in private and public childcare facilities.
Tax deductions related to pension payments
Taxpayers can also deduct a number of annuities from their income, including:
- Alimony or annuities paid to a divorced spouse
- life annuities.
The limits vary depending on the types of annuities paid during the year.
Tax deductions for donations
Donations and gifts made to associations, recognized public interest organizations, or cultural organizations may also be tax deductible.
To qualify, the total amount of donations and gifts made during the year must be greater than €120 and not exceed €1,000,000 or 20% of the taxpayer's net income.
Articles de la catégorie Fiscalité – Conseil
Tax returns in Luxembourg: do you have to file a return?
Have you just moved to Luxembourg or become a resident recently? Understanding your tax obligations can seem complicated in this new country.
Tax guide: personal income tax
Taxation is one of the fundamental aspects of Luxembourg's economic system. Known for its robust economy and favorable tax environment, Luxembourg has developed a tax system that attracts both individuals and businesses.
Withholding tax: optimize your taxes
Every year, Luxembourg attracts many residents, often expatriates, who want to take advantage of its dynamic economy and attractive living conditions. To integrate smoothly, it is important to understand the tax system, particularly withholding tax.