New favorable measures for taxpayers and companies

New favorable measures for taxpayers and companies

On December 11, 2024, the Luxembourg Parliament adopted bills no. 8414 and no. 8388, which amend the country’s tax legislation. These reforms include several important measures for both individual taxpayers and businesses, aimed at enhancing Luxembourg’s competitiveness and offering an attractive tax regime for residents and cross-border workers.

1. Reform of the Expatriate Workers Tax Regime Starting as from  2025, a new regime will allow highly skilled workers relocating to Luxembourg to benefit from a 50% exemption on their gross annual salary, up to a limit of €400,000.  Expatriate workers who have already moved to Luxembourg will have the option to choose between the old and the new regime.
2. Exemption of Bonuses for Employees Under the Age of 30 Bonuses paid to employees under the age of 30 for their first permanent contract will be partially exempt from taxes, up to 75% of the bonus, within a range of €2,500 to €5,000, depending on their salary.
3. Increase in percentage of participation in Employee Profit Sharing Scheme Companies will now be allowed to distribute up to 7.5% of their annual net income (instead of the current 5%) as bonuses to employees. The maximum amount may reach 30% of the gross annual salary.
4. Adjustment of the Tax Scale to Counter Indexation To offset the impact of inflation, the personal income tax scale will be adjusted starting in 2025, with the addition of two new indexed tax limits .
5. More Favorable Calculation for Single Parents and Widows The tax burden for taxpayers in the 1A tax class will be reduced by a more advantageous calculation formula, lowering hence their tax burden by the amount starting from €2,250 to €2,600 per year for incomes over €50,000.
6. Increase in Tax Credit for Single Parents The tax credit for single parents will be raised to €3,504 for incomes under €60,000, with a gradual reduction for incomes between €60,000 and €105,000.
7. Increase in Tax Credit for Minimum Social Wage The monthly tax credit for the minimum social wage will be increased to €81, compared to the current €70.
8. Increase in the amount of  Deductions for Extraordinary Expenses / charges for Dependents Extraordinary expenses / charges for children who do not live in the same household will now be deductible up to €5,424 per year and per child.
9. Tax Exemption for Minimum Salaries in All Tax Categories Workers earning the minimum wage will benefit from a complete tax exemption by means of the Minimum Social Wage Tax Credit (CISSM).
10. Tax Credit granted for Overtime Hours spent by  Cross-Border Workers A tax credit will be introduced to offset the loss of income due to the taxation of overtime hours in the worker's country of residence.
11. Digitalization of Tax Administration The tax law which will come into effect as from January 1, 2025 will be amended so as to require the electronic submission of certain tax returns, promoting  therefore digitalization and modernizing interactions with taxpayers,
12. Introduction of a Tax Credit for Certain Taxpayers A new tax credit will be established for taxpayers eligible for tax classes 1a and 2, which takes into account their professional income earned in 2023 and 2024, and  whereby specific conditions may be allowed due to the taxpayer’s family and professional situation.