Luxembourg tax: Local and international developments in personal taxation and social security

Government program: Main orientations in the tax and social area

On 29 July, Prime Minister Jean-Claude Juncker presented to the Parliament the Government programme for the next term of office. We hereafter summarize the main orientations of this programme in the tax and social area.


Individual income tax

The new Government has confirmed that individual income tax would not increase during the financial crisis. In the same time and due to the situation of public funds, no reduction of individual income tax would be proposed within the next two years; what would happen beyond this period will depend on the economic situation of the country.

With regards to fringe benefits, changes may be expected on the taxation of company cars. The Government has indicated that the tax regime of this benefit would be reviewed at the light of the environmental policy of the country.

The Government has also announced that the dependence insurance contribution rate should remain at the current level of 1,4% for the coming years. It is worth reminding that the rate applicable when the law on dependence insurance came into effect was 1%, and that this rate has been raised to 1,4% as from 1 January 2007.


Social security benefits and occupational pension schemes

The Government has indicated that the current regime of the parental leave, implemented ten years ago, will be assessed and possibly amended, among others towards more flexible leave periods. From a general standpoint, the Government considers reviewing the different family benefits linked to children's education with the possible goal of creating one single "parental benefit". With regards to housing, the Government considers the introduction of a housing benefit, which goal would be to temporary assist tenants and owners victims of serious difficulties (unemployment for instance).

The Government has confirmed that the State pension regime is healthy and well financed. Within the frame of the next discussions with management and labor, the Government has already announced that the general 40-year affiliation rule in force to get full pension benefits should be maintained, and that the conditions for a pension-earner to pursue a professional activity should be relaxed.

The situation of self-employed workers has also been addressed. The Government has announced that a true "Status for independent" will be created, where among others social security rights will be aligned on those of employees. In addition, the law on occupational pension schemes will be adapted to allow self-employed workers to build up pension rights in addition to those of the State pension regime.

The Government has finally announced that after ten years of existence the law on occupational pension schemes would be reviewed, although basic principles such as the voluntary character of the system or the guarantee of affiliates' rights would not be modified. The review of the law will allow to set up the legal framework for self-employed workers.


Labor law

With regards to work duration, the Government has confirmed that there would be no general reduction of the legal work duration, currently set at 40 hours per week, but that it would sustain management and labor initiatives in favor of the implementation of new work models. In addition, the Government has mentioned that the introduction of time-saving accounts would be encouraged, as they allow better flexibility in working time management both for employers and employees.

The Government has also announced that tele-working would be actively promoted as it has many advantages: time savings with regards to commuting, better efficiency, better work-life balance, better motivation, reduction of premises costs, reduction of traffic, pollution, accidents, etc.

Last but not least, with regards to immigration the Government has indicated that it will promote a proactive and coherent policy driven by labor market needs and the economic interest of the country. This orientation will likely have effects on the delivery of work permits for non-European Union workers.

We will make sure to keep our readers informed of future developments in the different areas addressed in this newsletter.


The measures announced by the new Government are characterized by a general policy of stability in the area of individual income tax and social laws. The few changes announced are driven by specific policies such as environment preservation that will impact company cars taxation, and encouragement of entrepreneurship that will lead to the setting up of a legal status for self-employed workers. The nature of the measures that will be taken is difficult to guess at this early stage of the new term of office. We will make sure to keep our readers informed in due course so they can take necessary actions in an appropriate timeframe.