Luxembourg | Employment Tax | Individual taxes and social security

Employment Tax

Luxembourg | Individual taxes and social security

The objective of this update is to provide employers and employees an overview of the main individual tax and social security changes which took place recently and which will have an impact in 2024.

At a glance

• Increase to EUR 3,000 for deductible mortgage interest paid on a loan for a primary residence – applicable for 2023 individual tax returns.
• Increase to EUR 4,422 for the maintenance/education costs of children who do not form part of the taxpayer’s household – applicable for 2023 individual tax returns.
• EU Framework Agreement applicable since 1 July 2023 increases up to 49.9% the percentage of telework which a non-Luxembourg resident employee can undertake while remaining affiliated to the Luxembourg social security system. Attention – this is an optional regime only applicable once certain conditions are met.
• Amendment to the Double Tax Treaty (DTT) between Luxembourg and Germany increasing from 19 to 34 the number of days of work outside of Luxembourg that a German resident employee of a Luxembourg company will be able to work without being taxed in Germany – applicable as from 2024 tax year.
• Increase to EUR 15 of the face value of a meal voucher as well as additional operational amendments to how meal vouchers can be used (e.g. limited number of vouchers can used per day) – as from 2024 tax year.
• And last but not least, modification of the individual tax scale together with the abolition of the CIC tax credit. Globally, this will lead to a small increase of the net-in the pocket income for most of the taxpayers – as from 2024 tax year.

In detail
Deduction of mortgage interest in connection with the primary residence
Grand-ducal decree dated 26 July 2023 modifies the deduction ceilings as from 1 January 2023. Changes are as follows:

Old regime applicable from 2017 to 2022		New regime applicable as from 2023 tax year
Period concerned	Ceiling of deduction (per member of the household)	Period concerned	Ceiling of deduction (per member of the household)
First year of occupation + 5 following years	EUR 2,000	First year of the fixing of the rental value + 5 following years	EUR 3,000
Years 6 to 10	EUR 1,500	Years 6 to 10	EUR 2,250
As from year 11	EUR 1,000	As from year 11	EUR 1,500

On top of the increase to the ceilings, there is one additional important modification to be noted. Up until the 2022 tax year, the ceilings were applicable as from the moment the taxpayer moved effectively in the property. This means that prior to moving into the property, i.e. from the date of acquisition to the date of moving into the property no ceiling was applicable (to interest paid on the mortgage loan as well as financing costs¹). However, as from 2023, the event triggering the application of the ceiling of deduction changes. The triggering event is now the moment the rental value of the property is fixed, which occurs as soon as the owner may freely use the property for his personal housing needs (primary or secondary) and which is assumed, unless it is rented out or part of a net invested assets, to be as from the act of acquisition or the date of completion in case of a construction and regardless of whether the property is occupied or not. There are 2 exceptions to this principle:

• When the property has been acquired through a “sale before completion” transaction (“i.e. “Vente en l’état future d’achèvement” or “VEFA” in French) and is not yet achieved,
• When the owner has purchased or owns a building which is in such a state of dilapidation that it no longer meets the conditions allowing it to be considered a dwelling. The owner cannot be considered to have free possession of a home before the renovation and restoration work is completed.

These two exceptions are now the only cases where it is possible to claim the deduction of the mortgage interest without limit. As from when the construction is finalised or the restoration work is completed, the maximum deductible amounts will be applicable even if the taxpayer does not move into the house right away.

The week of 29 January 2024 the Government announced their intention to introduce measures which would impact the deductibility of interest in connection with property loans etc. A specific Bulletin will be published by us once the proposals are introduced into law.

Costs for the maintenance and education of children who do not form part of the taxpayer’s household
Circular dated 26 July 2023 increases the maximum deduction of costs per child from EUR 4,020 (regime applicable from 2017 to the 2022 tax year) to EUR 4,422 as from tax year 2023. However, the terms and conditions for granting the deduction remain unchanged².

Framework agreement on social security for cross-border telework 
On 5 June 2023, Luxembourg signed the new Framework Agreement for regular cross-border telework which entered into force on 1 July 2023, right after the expiry of the transition period put in place during the Covid-19 crisis.

According to the Framework Agreement, “Cross-border telework” is an activity which can be pursued from any location and could be performed at the employer’s premises or place of business and:

• is carried out in a Member State or Member States other than the one in which employer’s premises or the place of business are situated and,
• is based on information technology to remain connected at the employer’s or business’s working environment as well as stakeholders/clients in order to fulfil the employee’s tasks assigned by the employer.

According to these new EU regulations, a cross-border worker may work from home/co-working space while remaining affiliated to the social security system of the country where the employer is located providing that the following conditions are cumulatively fulfilled:

• The country of residence of the employee as well as the country where the employer is established both signed the Framework Agreement,
• The employee has only one employer, or several employers located in the same Member state,
• The percentage of telework is between 25% and less than 50% of the total work time and telework is fully exercised from the residency country.

The Framework Agreement has been signed by the three neighbouring countries (i.e. Belgium, France and Germany). Please find the full list of signatory countries as well as all the regulations following the below link.

https://socialsecurity.belgium.be/en/internationally-active/cross-border-telework-eu-eea-and-switzerland

Since 1 July 2023, any teleworking activity carried out by a non-Luxembourg resident employee must be declared to the CCSS (i.e. “Centre Commun de la sécurité sociale”) regardless of the percentage of telework carried out. The Framework Agreement provides a transitional period according to which employers have up to 30 June 2024 (included) to declare any regular telework performed by an employee since 1 July 2023 providing that he has been affiliated to the Luxembourg social security system during the entire period.

Further guidance is expected to issue over the coming weeks and months from the different social security authorities to provide more guidance on the application in practice of this optional regime (for example, what if an employee has business trips, can they benefit from the agreement)?

New ceiling for telework for German residents 
The amendment dated 6 July 2023, to the DTT in force between Luxembourg and Germany has been ratified by both countries in December 2023, entered into force on 29 December 2023 and is applicable as from 1 January 2024. The main modification is the extension from 19 days to 34 days of the tolerance threshold allowing employees to work from their home country or third countries while being still taxed in the country where they usually exercise their activity. In practice, this means that German resident taxpayers working in Luxembourg will be able to spend up to 34 days of either telework in Germany and/or work in third countries while remaining taxed in Luxembourg.

New rules for meal vouchers
Two Grand-ducal decree dated 25 September 2023 provides that the face value of a meal voucher may increase to EUR 15 as from 1 January 2024. Increases are not automatic and are at the discretion of the employer. The taxable value of a meal vouchers remains unchanged (i.e. EUR 2.80). The new provisions also provide various supervisory measures with respect to the use of meal vouchers as from 1 January 2024:

• Their use is limited to 5 vouchers per day,
• They may be used only to buy meals or food,
• Paper vouchers will no longer be issued and may be used until the end of 2024 before moving to a fully digitalized solution.

Provisions impacting the individual tax liability 
Grand-ducal decree dated 22 December 2023 introduces an increase of the tax brackets by 10.8% (equivalent of 4 indexations) applicable as from 1 January 2024. In most cases, the new tax scales should result in tax savings for individuals, but other amendments will also have an impact on the net-in-pocket.
The below modifications to tax credits have also been implemented:

• Economic tax credit (in French, “Crédit d’impôt conjuncture”, or “CIC”) is no longer in force as from 1 January 2024,
• Employee tax credit (in French, “Crédit d’impôt salarié”, or “CIS”) yearly maximum amount is reduced from EUR 696 to EUR 600,
• A new CO2 tax credit (in French, “Crédit d’impôt CO2”, or “CI – C02”) is implemented as from January 2024. This tax credit amounts to a maximum of EUR 168 for a yearly gross income below EUR 40,001 and is then gradually reduced to EUR 0 up to a yearly gross income of EUR 79,999.

Here are few examples of the above changes (i.e. new tax scales and changes of the applicable tax credits) comparing the net in pocket income of 2023 and 2024 tax years:

NET IN POCKET COMPARISON3
Gross income	EUR 50,000		EUR 100,000		EUR 200,000
Tax year	2023	2024	2023	2024	2023	2024
Tax class 1	EUR 38,060	EUR 38,356	EUR 62,612	EUR 63,257	EUR 114,866	EUR 115,438
Tax class 1A	EUR 38,855	EUR 39,456	EUR 63,369	EUR 64,085	EUR 115,624	EUR 116,265
Tax class 2	EUR 42,770	EUR 42,521	EUR 73.690	EUR 75,085	EUR 127,479	EUR 128,928

Please stayed connected with us throughout 2024 as we will provide updates on all individual tax, immigration, social security changes that may impact employers and employees.

How we can help 
We offer a full range of HR related services including personal and employment tax and social security related services. To help you comply with and to make the most of your tax obligations.

Consulting tax – Compensation and Benefits

• Offer the best optimised package to your employees: analysis, cost estimations, set up of remuneration policies
• Implementation of the special tax regime
• nalysis and assistance in connection with the profit sharing plan

Global mobility services and consulting

• Provide full compliance support to your mobile employees with their tax return filing obligations in Luxembourg
• Measure tax implications of expatriation and ensure full compliance with international social security and tax rules
• Pre-payroll analysis, annual checks

Immigration services

• Facilitate the quick arrival of your third country talents in Luxembourg
• Advice on immigration and social badges

Multi-territory payroll processing

• Benefit from the widest global international payroll network to ensure full compliance with payroll obligations of your cross borders workers and expatriates

HR administration outsourcing

• Rely on experienced consultants able to implement your HR policy on a daily basis
• Ensure a reliable point of contact for your employees
• Manage specific projects with consultants equipped with a solid knowledge of the Luxembourg legislation and market

Incentive plans

• Implementing and advising any kind of incentive plan (stock-options plan, RSUs, phantom plan, …)
• Coordinating cross border incentive plans

Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Eric Paques
Partner

Denise Chambers
Director

Quentin Cosco
Manager

Further information on Vialto Partners can be found on our website: www.vialtopartners.com

For additional alerts, please visit: www.vialtopartners.com/regional-alerts

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Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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1. such as the single premium, the deed for the mandatory mortgage and the administrative charges.
2. the children concerned are the one who are not part of the household of the taxpayer nor living with him and who are maintained and educated mainly at his expense (when the taxpayer contributes more than 50% of the costs). In case of a child over 21 years old, he needs, in addition to the previous conditions mentioned, to continuously pursues full-time studies extending over more than one year.
3. we assume the Luxembourg social security contributions apply and is the only tax deduction.

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Further information on Vialto Partners can be found here: www.vialtopartners.com

Vialto Partners (“Vialto”) refers to wholly owned subsidiaries of CD&R Galaxy UK OpCo Limited as well as the other members of the Vialto Partners global network. The information contained in this document is for general guidance on matters of interest only. Vialto is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. In no event will Vialto, its related entities, or the agents or employees thereof be liable to you or anyone else for any decision made or action taken in reliance on the information in this document or for any consequential, special or similar damages, even if advised of the possibility of such damages.

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