Vote of the law amending the personal income tax scale
22/12/23
In Brief
As announced by the newly elected Luxembourg government in its coalition agreement, the personal income tax burden is set to be reduced as from 1 January 2024. In this context, on 20 December 2023, the Luxembourg parliament voted the law 8343 (“the Law”) modifying the personal income tax scale for individuals.
In detail
Proposed amendments to the personal income tax scale for individuals enhance the amendments already foreseen further to the tripartite agreement (“Solidaritéitspak 2.0”), aiming to mitigate the negative impacts of inflation and economy on households.
Indeed, the tripartite agreement had already foreseen an adjustment of the personal income tax scale reflecting 2.5 index-linked brackets by the law of 5 July 2023 as from 2024. For 2023, the adjustment took the form of a tax credit, which will stop at the end of 2023. The Law aims to take a further step in favour of taxpayers. For this purpose, it provides for an additional adjustment reflecting 1.5 index-linked brackets, resulting in an additional increase of 5.19% of the income tax brackets.
Consequently, the Law provides a global adjustment of the tax scale to inflation reflecting 4 indexed brackets in total, which means a total increase of 10.38% of the tax bracket levels.
Some of the tax brackets are reproduced in the table below to illustrate this 10.38% increase.
|
Current tax scales applicable until 31 December 2023 |
New tax scales applicable as of 1 January 2024 |
Tax bracket 0% |
Taxable income below EUR 11,265 |
Taxable income below EUR 12,438 |
Tax bracket 8% |
Taxable income between EUR 11,265 and EUR 13,137 |
Taxable income between EUR 12,438 and EUR 14,508 |
Tax bracket 39% |
Taxable income between EUR 45,897 to EUR 100,002 |
Taxable income between EUR 50,751 to EUR 110,403 |
Tax bracket 40% |
Taxable income between EUR 100,002 and EUR 150,000 |
Taxable income between EUR 110,403 and EUR 165,600 |
Tax bracket 41% |
Taxable income between EUR 150,000 and EUR 200,004 |
Taxable income between EUR 165,600 and EUR 220,788 |
Tax bracket 42% (marginal tax bracket) |
Taxable income exceeding EUR 200,004 |
Taxable income exceeding EUR 220,788 |
The impact of these additional tax brackets on the forecast budget revenues of 2024 has been estimated at a total of EUR 480 million for the Grand -Duchy.
In addition, the Law foresees an adjustment to the re-evaluation coefficient applicable to the calculation of the taxable capital gain resulting from the disposal of significant shareholding held for more than 6 months or the disposal of real estate held for more than 2 years.
Please refer to the official draft Law to access the table including all tax brackets by clicking the following link: https://wdocs-pub.chd.lu/docs/exped/0143/113/287132.pdf
Conclusion
The adjustment to the tax scales reflecting inflation is welcome. Other measures targeting individuals’ taxation are expected to be implemented in the short-term, as per the new government’s coalition programme for the next 5 years. Such measures are intended to reinforce Luxembourg attractiveness for talents and to help tackle some of the existing problems that Luxembourg is currently facing (such as the real estate crisis).
