Whether you’re single, married or in a civil partnership, you can reduce your tax bill in Luxembourg just by knowing what you can and can’t deduct. The myLIFE team takes a look at the main tax deductions possible for resident and cross-border taxpayers.
The mere thought of taxes often strikes fear into the hearts of most people. Even more so when a reform has far-reaching effects on taxpayers’ habits, in particular those of non-resident married couples. However, there are also times when dealing with taxes can actually be a good thing.
How can I pay less tax?
All taxpayers can reduce the amount of taxes they pay by declaring certain costs, charges and extraordinary expenses, including in particular tax deductible products. To do this, you need to meet one of two requirements: you must live and file a tax return in Luxembourg, or be equivalent to a resident for tax purposes.
Someone who is not tax resident in Luxembourg may, under certain conditions, be able to benefit from the same tax advantages and constraints as a resident taxpayer.
- Filing a tax return in Luxembourg. If they want to, a taxpayer who is not legally required to complete a tax return can still do so, provided that they have been an employee in Luxembourg for at least nine consecutive months during the tax year and if more than 50% of their professional income has been earned in Luxembourg.
- To be equivalent to a resident for tax purposes, someone who is not tax resident in Luxembourg may, under certain conditions, be able to benefit from the same tax advantages and constraints as a resident taxpayer. To do this, you must meet the applicable criteria and submit a request using the Luxembourg tax return (form 100 income model 2019), ticking among boxes 322, 323 and 324.
The criteria to be treated as equivalent to a resident are as follows:
- Belgian non-resident taxpayers must receive at least 50% of their tax household’s professional income from Luxembourg.
- For Belgian cross-border workers (who do not meet the 50% requirement) and French and German cross-border workers, non-resident taxpayers who receive at least 90% of their own total income in Luxembourg can be taxed in Luxembourg.
These conditions have been extended for the 2019 tax return (2018 income) onwards. If a non-resident receives net income that does not come from Luxembourg but is less than €13,000, they can still request to be treated as equivalent to a resident.
Be careful though – by choosing to be treated as equivalent to a resident for tax purposes, cross-border taxpayers must declare all of a couple’s income. If one of them does not work in Luxembourg, their income will not be taxed in Luxembourg and will only be used to determine the tax rate on Luxembourg income for the tax household.
What can I deduct to reduce my tax bill?
Interest on loans, contributions, etc. There are a number of ways of paying less tax, by stating all expenses that may be deducted in your tax return. Among other things, these expenses include contributions, insurance premiums, interest on loans, maintenance payments, pensions, contributions to home savings plans, top-up pension schemes, donations and gifts, and charges or allowances for children who are not part of the household. These various costs and charges must be entered on pages 13 to 18 of the tax return on 2018 income. This is explained in more detail in the article “Tax returns: exceptional expenses and extraordinary costs”.
Investing in property can also be a way of reducing your tax bill.
Property loans and rental income. Investing in property can also be a way of reducing your tax bill. Taxpayers can deduct interest on property loans, whether in relation to a primary residence or a buy-to-let investment.
- Interest on property loans. Taxpayers can deduct interest expenses relating to the loan for their primary residence. Each cap is doubled if you have a spouse or partner and for each child. The good news is that deductible amounts were increased by the 2017 tax reform:
Number of years Deductible amount
For the first year and the next 5 years €2,000
For the subsequent 5 years €1,500
After 11 years €1,000
Source: Le Guide des impôts, 2018 edition
- Rental income from letting a property. If a taxpayer lets out a property in Luxembourg, they must declare their rental income in the 190F tax return. However, costs and expenses relating to the upkeep of the property (maintenance, repairs) can be deducted and an amortisation charge for depreciation applied. All this reduces the amount of rental income. If the property is in another country, it will not be taxed in Luxembourg. More information about rental properties can be found on the website of the Luxembourg tax authorities (Administration des Contributions Directes).
Don’t forget that the deadline for submitting your tax return in Luxembourg is 31 March for taxpayers required to complete a tax return or wishing to change their mode of taxation by opting for an individual taxation. For other taxpayers, the deadline is 31 December. After this date, taxpayers will no longer be able to benefit from any tax deductions.
If you want to calculate how much you could deduct from your taxes, check out our simulation.