Moving to Luxembourg is quite an adventure: a new job, registering your children at school, looking for accommodation and dealing with a whole host of administrative formalities. This change of life also has repercussions on your tax situation, particularly your tax return. Discover practical advice and tips on how to optimise your tax situation as soon as you arrive.
Understanding tax in Luxembourg: everything you need to know
In Luxembourg, taxpayers are divided into different tax classes: class 1 for single people, class 1A for single people with children or widowers, and class 2 for married couples. Your class is shown on your tax card, issued by the Direct Tax Department.
Class 2 benefits from the most favourable tax advantages and therefore generally pays the least tax.
Class 2 is mainly made up of married couples or partners in a legal union, who are taxed jointly. The couple's incomes are added together and then divided by two to calculate tax on a reduced basis. This prevents high incomes from being taxed in the highest brackets.
In addition, this class offers higher deduction limits for certain expenses (such as insurance contributions or interest on loans).
In comparison:
Class 1 (singles) and Class 1A (singles with children or widowers) are taxed at higher rates, as they do not benefit from this income split or the same tax benefits. However, class 1A benefits from certain increases for expenses relating to dependent children.
If you are resident in Luxembourg for tax purposes, you are obliged to declare your income. But the good news is that there are ways of reducing your tax liability by deducting certain expenses and charges, thereby reducing your tax base.
What deductions are possible?
Two types of expense are deductible: extraordinary expenses and special expenses. Here's what you need to know to optimise your tax return.
Extraordinary expenses
These exceptional expenses are linked to unforeseen situations that have a significant impact on your budget. They include
Medical expenses not reimbursed in the event of infirmity, invalidity or serious accident.
Expenses relating to dependent children, such as education or vocational training (up to €4,020 per child).
Expenses for help and care in the event of dependency (for you or a member of your family).
Childcare costs, covering crèches, nurseries or halfway houses.
Domestic help, such as employing a domestic helper.
Special expenses
These deductions relate to personal matters and vary according to the composition of your household. They include
Insurance premiums (life, death, disability, mutual insurance, etc.): up to €672 per person/year.
Contributions to a supplementary pension scheme set up by your employer: capped at €1,200/year.
Retirement savings: up to €3,200/year to build up retirement capital.
Maintenance payments to an ex-spouse: up to €24,000/year.
Home savings: up to €1,344/year for those aged 18-40 and €672 for those aged 40 and over.
Interest charges on personal or property loans. For home loans, the ceilings vary from €3,000 to €1,500 depending on the term.
Donations to recognised associations: between €120 and €1 million/year, up to a limit of 20% of your income.
Home-work travel expenses: maximum deduction of €2,574/year.
Cross-border commuters
Are you a cross-border commuter (France, Belgium) and would like to know what your obligations are or what deductions are available? Consult the Luxembourg tax guide for detailed information.
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