The government’s coalition programme, just the coalition programme, but the whole coalition programme. In a 26-minute press conference on Wednesday afternoon, finance minister 
Does the state have the resources to implement this plan? Yes and no. Financially, not quite, but it will make up at least part of what it loses in taxation through increased consumption. And that will boost confidence, which according to the Luxembourg Central Bank’s indicators is not rising all that much.
“With our ‘Entlaaschtungs-Pak’, we are boosting household purchasing power and consolidating business competitiveness. By promoting social cohesion and increasing the attractiveness of our economy and our financial centre, we are sending out a strong political signal as we emerge from the polycrisis”, he commented during a press conference on Wednesday 17 July.
“If we did nothing, people would have paid more and more tax”, said Roth, who reminded the audience every five minutes or so of the social dimension of this package of measures, their importance for social cohesion and the fight against poverty. “This is not an accounting plan…. It’s not a blank cheque. It’s an investment in the future of our country, a political signal!”
The measures include those for single-parent families, where children are most at risk of poverty. The measures come on the same day that the NGO Kidrights ranked Luxembourg number 1 in the world in terms of child protection in the twelfth edition of its annual league table.
The government remains on schedule with its coalition programme. What is missing is the tax reform that will implement fully individual tax returns. “Individualisation is one of the key measures called for by all the parties in the Chamber of Deputies. I’m going to do my best to bring this project to fruition. Work at the Ministry of Finance and the tax authorities is well under way. I hope to be able to present a bill to the cabinet and the finance committee of the Chamber of Deputies within a year,” Roth said.
For the time being, there is no sign of any specific measures to encourage investment in startups. “I will try to present, by the end of the year, measures with the minister for the economy to support startups in Luxembourg, which have an impact on the economy and on attractiveness, and legislation on blockchain and artificial intelligence. The fintech ecosystem is a real sector of the future. I’m pleased to see so many young people getting involved in these new models.”
Nor is there any sign of tax incentives for the dual digital and ecological transition for businesses. “An initial series of measures have been taken to subsidise investment, and other measures will follow. This afternoon also saw the press conference of my colleagues on the updating of Luxembourg’s climate plan,” Roth said.
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For households
The personal income tax scale will be adjusted by an additional 2.5 index brackets, giving a total of 6.5 brackets, including those that had already been adjusted when the government was appointed.
What will this change?
- A single person earning a salary of €50,000 will pay €5,208 in tax in 2025 instead of €6,135 in 2023. They will save €927 (or -15.1% tax) compared with 2023 or €502 (-8.8%) compared with 2024.
- A family with two children, in class 2, with a gross salary of €75,000 will pay €4,024 in tax in 2025 instead of €4,718 in 2023. This represents a saving of €694 (-14.7%) compared with 2023, or €444 (-8.2%) compared with 2024.
- The same family with a gross salary of €125,000 will pay €16,358 in tax in 2025. That’s €2,793 euros (-14.6%) less than in 2023, or €1,460 (-8.2%) less than in 2024.
For single-parent families and people on the unskilled minimum social wage
In addition to adjusting the scale for inflation and reviewing the mathematical formula for class 1A, the single parent tax credits (Cim) and the social minimum wage have been “substantially revalued”.
- A household with a gross annual salary of up to €52,400 and receiving the full Cim will no longer pay tax in 2025.
- The same household with a gross annual salary of €50,000 will have a tax credit of €614 in 2025 instead of paying €2,888 in tax in 2023 or €2,179 in 2024.
- All non-qualified minimum wage earners, including those in class 1, will no longer pay tax in 2025.
- The allowance for extraordinary expenses for children not forming part of the household will rise from €4,422 to €5,424 per year and per child from 2025.
- Debit interest on property loans for the acquisition of an existing home, including bridging loans, will be fully deductible from the 2024 tax year.
For employees
- The company will be able to grant a higher profit-sharing bonus (7.5% of the positive result of the previous operating year) increased from 25% of the gross annual remuneration before incorporation of benefits in cash and in kind to 30%.
- The impatriate scheme has been replaced and simplified: an exemption of 50% of gross annual pay up to €400,000.
- A bonus for young employees under the age of 30 who have their first permanent contract in Luxembourg: 75% of this bonus of between €2,500 and €5,000 (depending on the employee’s salary) will be tax-free. This will be in addition to the rent allowance introduced on 22 May.
- A tax credit of up to €700 a year for overtime worked by cross-border workers, subject to certain conditions.
For businesses and the financial centre
- The rate of corporation tax will fall from 17% to 16% for companies with taxable income in excess of €200,000;
- and from 15% to 14% for SMEs with income of up to €175,000.
- A smoothing mechanism will complete the system for companies with taxable income between €175,000 and €200,000.
From 2025, the overall tax rate for businesses will be 23.87% (compared with 24.94% this year); for SMEs, this rate will fall from 22.80% to 21.73%. This is close to the OECD average rate (23.6%) and the EU average rate (21.2%).
- ETFs that are actively managed will be exempt from subscription tax from 2025 “as a lever for the diversification of the financial centre and for the development of new activities”.
- The minister’s document also mentions adapting the rule limiting excess borrowing costs and adapting the legal regime for family asset management companies to prevent abuse.
Read the original French version of this report here
