Employment tax
Luxembourg | New tax reliefs announcement
Summary
On 17 July 2024, Luxembourg Minister of Finance Gilles Roth presented to the Parliamentary Finance Committee the government’s “Entlaaschtunggs-Pak”, a tax relief package including new measures to reduce Luxembourg taxpayers’ income tax burden and to increase the attractivity of the country for foreign investors. These measures are already included in Bill 8414 which was filed to the Luxembourg Parliament.
The detail
Lower income tax rates for Luxembourg individuals
Revised income tax brackets
Luxembourg income tax brackets as from 2025 are announced to be extended. Therefore, the progressivity of income tax will be reduced. For 2024, 4 indexations were already introduced into the tax scales and 2.5 additional ones will be included for 2025 tax year. This will lead to lower taxes for all tax classes.
Focus on single-parent families and the lowest wages
The tax scales applying to individuals falling into tax class 1a – mainly single parents entitled to a child boni, widows and taxpayers aged more than 64 at the beginning of the tax year – will be separately reviewed to adapt and lower the level of income tax. For instance, the first tax bracket, with no tax applicable, should increase from EUR 24,876 to EUR 26,460.
On top of that, 2 tax credits will be adjusted and increased:
– The Single Parent Tax Credit (“Crédit d’impôt Monoparental CIM”): The maximum amount should increase from EUR 2,505 to EUR 3,504. The new formula is supposed to neutralise the income taxes due up to an annual gross salary EUR 52,400. Note that the CIM is applicable upon request and under certain conditions, at payroll level or at tax return level.
– The Social Minimum Wage Tax Credit (“Crédit d’Impôt Salaire Social Minimum CISSM”): The amount should be revised so that employees earning the minimum wage for non-qualified workers have no tax liability, in all tax classes. Today, the minimum salary is EUR 2,570.93. When the next indexation applies – expected at the end of 2024 – it will increase to EUR 2,635.21.
Examples
| Tax class | Situation | Gross annual salary | 2025 income taxes |
Tax savings compared to 2024 |
| 1 | Single | €50,000 | €5,208 | (€502) |
| 1 | Single | €100,000 | €22,045 | (€748) |
| 1a | Widow / aged 64+ | €50,000 | €2,890 | (€1,794) |
| 1a | Widow/ aged 64+ | €100,000 | €19,724 | (€2,928) |
| 1a | Single parent with CIM | €50,000 | – | (€2,793) |
| 1a | Single parent with CIM | €100,000 | €17,929 | (€2,674) |
| 2 | Married jointly taxable | €50,000 | €1,011 | (€173) |
| 2 | Married jointly taxable | €100,000 | €9,123 | (€896) |
The revision of the annual tax scales because of indexation should be a clear tax saving for all tax classes, particularly those on the lowest income.
Vialto comments: The decrease of the personal tax liability will certainly be appreciated by Luxembourg taxpayers. We see that a specific additional tax relief will apply for taxpayers subject to tax class 1a (essentially the single parents).
The promised and more ambitious reform of the individual tax system (revamping of the current discriminatory tax classes system) is still to come.
Increasing the attractivity of Luxembourg
New inpatriate tax regime
The current inpatriate regime aims at exempting from taxation part or all of the relocation benefits and premiums paid to an employee hired from abroad or seconded to Luxembourg, provided that the employee and the company meet specific eligibility criteria. Certain ceilings also apply in the amounts to tax exempt, depending on the nature of the benefits/premiums paid.
What is proposed through the new (simplified) inpatriate regime as from 2025 is to have 50% of the gross annual remuneration tax free, limited to EUR 400,000. This approach aligns Luxembourg with similar regimes in other EU countries (e.g. The Netherlands or Spain). The conditions to be eligible to the new inpatriate regime remained basically unchanged, except that the employee has to exercise the activity for which he is benefiting from the regime for at least 75% of the working time.
The current regime will continue to apply to those employees moving to Luxembourg in 2024 and who are eligible for the regime unless they opt to the new regime applicable from 2025. In such a case, the choice will be irrevocable.
Vialto comments: The goal seems to improve and simplify the current inpatriate regime – to allow Luxembourg employer to recruit easier talents from abroad. This goes in the good direction as we see that a lot of Luxembourg employers do not apply it (for various reasons) and/or do not optimize in an appropriate way the current regime, which is already very attractive.
New Profit-sharing Scheme
This mechanism allows companies to pay a 50% tax free participation premium to their employees providing that certain conditions are fulfilled. With the new tax measures, as from 2025, the total amount that can be allocated to employees as part of the scheme could increase from 5% to 7.5% of the profits of the employing company in year Y-1. In addition, the ceiling of the maximum premium to be paid per employee could increase from 25% to 30% of the employee’s annual gross fixed remuneration (excl. benefits and non-periodic payments).
Vialto comments: The increase of the ceiling is appreciated. However, this system of “primes participatives” still seems discriminatory as only employees working for (very) profitable companies can be entitled to this favorable tax regime.
Costs for the maintenance and education of children who are not part of the taxpayer’s household
The maximum deduction of costs per child (which have already been increased from EUR 4,020 to EUR 4,422 as from tax year 2023) should be increased again and up to EUR 5,424.
Deduction of mortgage interest in connection with the acquisition of a primary residence already existing
As from tax year 2024, mortgage interest paid on the acquisition of a pre-existing property for the purposes of using it as a primary residence should be deductible without any ceiling for the year of acquisition and the following year. Thereafter, there should be ceilings of EUR 4,000, EUR 3,000 and EUR 2,000 applying, depending on how long the property has been occupied.
Vialto comments: Interesting provision – but with effects very limited in time (only applying for 2 years).
Introduction of a new premium for young employees aged less than 30 years old
As from 1 June 2024, a new paragraph 13c was already added to article 115 LITL, allowing, under certain conditions (one of which is to be under the age of 30), the tax exemption of a “rental premium” paid by the employer. The new tax relief package also adds a provision as from 2025 to help employees who should be 30 years’ old maximum, where a specific premium allocated by the employer will be 75% exempted. The said premium is capped as follows:
Vialto comments: It will certainly be interesting tax wise to apply for the employers. Its concrete application will raise some questions. It may seem discriminatory to apply this favorable tax regime only to some employees based on their age. Indeed, a 28 years old employee who earns EUR 100k will be entitled to it while another 32 years old employee who earns EUR 40K/year will not.
Tax credit on overtime for cross-border workers
A new tax credit of a maximum of EUR 700 will be implemented for non-resident employees working and being paid for overtime. This new measure is likely connected to the recent clarification obtained from the German tax authorities about the taxation of Luxembourg exempted overtime for German cross-borders (see our Bulletin in that respect). The tax credit will be requested at tax return level.
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
Michael Roser
Senior Manager
Quentin Cosco
Manager
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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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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