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Luxembourg Tax: Developments affecting personal taxation and social security

Following particularly tough tripartite negotiations and a tense political climate, the Luxembourg Prime Minister made his speech on 5 May 2022 to the Chamber of Deputies on the state of the nation. After emphasizing the need to implement financial market regulations on a European or even worldwide level, the Prime Minister noted the persistent growth challenges affecting the EU, citing Greece and the obligation for European countries to contribute to the stabilization of Greece, in particular, to protect the euro. The primary objective of the government is to achieve a balanced budget in 2014.

Below are the main measures that affect individuals.

Taxation of individuals

- The amount of travel expenses that may be deducted in computing taxable income would be reduced by half starting from 2011.
- The solidarity tax, which is a surcharge on the income tax rates and currently amounts to 2.5%, would be increased to 4%. The rate would go up to 6% for households with annual taxable income exceeding EUR 300,000.
- It is planned to raise the maximum tax rate from 38% to 39% for the income bracket exceeding EUR 41,799 (EUR 83,598 for couples taxed jointly).
- A temporary crisis tax of 0.8% would be levied on all categories of income; only those earning less than the social minimum wage would be exempt.

Considering these proposals, the marginal rate would be increased from the current rate of 38.95% to 41.36%, and 42.14% for the portion of taxable income exceeding EUR 300,000. Overall, for income between EUR 50,000 and EUR 250,000, these measures would lead to a tax rise that would correspond to a percentage between 0.5% and 2%, depending on the level of income and family status.

Social benefits

- It is proposed to abolish family allowances for children over 21 years old, except for children that are still attending a vocational or secondary school. In compensation, the government plans to revise upwards scholarships and university loans.
- The parental leave system would remain unchanged for 2011. However, a new analysis will be carried out in 2012, which may result in changes to the existing regime.
- It is proposed to split the pension adjustment initially planned for 1 January 2022 over two years: a first band of 0.95% on 1 January 2022 and a second band of 0.95% on 1 January 2012.
- The education allowance will not be abolished but it is planned to grant it only to future beneficiaries over age 65 (rather than 60).
- Unemployment benefits will stay capped at 2.5 times the social minimum wage, but it is planned that the reduction to two times the social minimum wage would take place after nine months instead of the current six months. Moreover, the possibility to extend benefits beyond 12 months would apply to individuals over 45 years old (currently only for individuals over 50).


- The government thinks that it would be expedient to implement a ceiling for bonuses and severance payments ("bankers' bonus"). Consequently, every payment over this ceiling would be a nondeductible expense for the company.
- It is proposed to implement accident insurance at a single rate of 1.25% applicable to every sector.

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