November 2, 2023

How can Newcomers optimise their tax returns?

Changing jobs and schools for your children, looking for somewhere to live, dealing with a host of administrative procedures, moving to Luxembourg is a real adventure. This move also has an impact on your tax situation, and in particular your tax return. Foyer explains how to optimise this and give you some useful tips.

Couple en train de faire sa déclaration fiscale

How do Luxembourg taxes work?

In Luxembourg, taxpayers are divided by class. Depending on your status, you will be in class 1 (single), class 1A (individuals with children, widow) or class 2 (married couples). This is indicated on your tax card drawn up by the tax authority, the Administration des contributions directes.

When you establish your tax residence in Luxembourg, you are subject to an obligation: to declare your income. You can, however, reduce the amount on which you pay tax (known as the tax base). How? By deducting certain fees, charges and expenses.

What fees can be deducted?

You can deduct extraordinary costs and special expenses from your tax return. Foyer will help you to see more clearly and explain which ones will help you optimise your return.

Extraordinary expenses

Extraordinary expenses are one-off expenses that you cannot avoid. They reduce your financial capacity and therefore your tax base. Deductions for these charges depend on your income and the composition of your household.

The main expenses are:

– uncovered sickness costs related to infirmity, disability or a serious accident;

– expenses related to the education, maintenance or vocational training of dependent children, with a maximum allowance of €4,020 per child;

– assistance and care costs due to your state of dependency or that of a member of your family;

– childcare expenses, which include the costs of looking after your child in a nursery, daycare centre, day nursery, etc.;

– the cost of employing a domestic help, for example;

– sustainable mobility costs with an allowance of €5,000 for zero-emission, electric or hydrogen cars and €3,000 for electric bicycles.

Special expenses

Special expenses concern your private life. Once again, the amount you can deduct is capped and depends on the composition of your household.

Deductible special expenses relate to:

premiums and contributions paid to companies: for example, life insurance, death and disability insurance, civil liability insurance, outstanding balance insurance, mutual insurance and supplementary health insurance. The maximum deduction is €672 per person per year;

– contributions to a supplementary pension scheme set up by your employer, up to a maximum of €1,200 per year;

retirement provision, with a tax-deductible annual premium of €3,200 per year to build up retirement capital;

support paid to a former spouse up to a limit of €24,000 per year;

home savings taken out with a Luxembourg-authorised savings bank. The deduction is capped at €1,344 per person per year for people aged 18 to 40 and €672 for those aged 40 and over;

– interest due on loans: interest on personal loans, consumer loans or mortgages. For mortgage interest, the deductible amount totals €2,000 in the first six years, €1,500 the following five years and €1,000 thereafter. Rental costs (maintenance and repair costs) may also be deducted;

donations and gifts: paid to charitable organisations in an amount of between €120 and €1 million per year, provided they do not exceed 20% of your income;

travel expenses: these are calculated between your home and your place of work. The deductible amount is a maximum of €2,574 per year.

Now that you know what costs and expenses you can deduct, you can start thinking about your next tax return with peace of mind!

Foyer offers you a range of tax-deductible products to support you, which you can explore right now.

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