Law adjusting the personal income tax scale voted

Today, the Luxembourg Parliament adopted Bill No 8343, which adjusts the personal income tax brackets by an equivalent of 4 index tranches starting from 1 January 2024 (the “Law”).

The Law implements one of the measures announced in the new government’s coalition agreement that aim at supporting households.

In a nutshell, according to the Law, the lowest rate of 8% will apply to the income bracket between EUR 12,438 and EUR 14,508 (the current bracket being between EUR 11,266 and EUR 13,173). The next bracket taxed at 9% will therefore start at EUR 14,508 (up to EUR 16,578) instead of EUR 13,173 today and so on. The maximum tax rate of 42% will apply to income of EUR 220,788 (and above) instead of EUR 200,005 as at present.

In a press release of 30 November 2023, Finance Minister Gilles Roth provided a series of examples to show what this adjustment will mean in practice:

• For a taxpayer in tax class 1 with an annual gross salary of EUR 75,000, it will result in an annual net gain of EUR 1,095 in 2024.
• For a couple with a total gross annual income of EUR 125,000 (where the first person’s salary represents 2/3 and that of the second 1/3), the gain will amount to EUR 2,189 by applying the new brackets. Their tax burden will therefore decrease by 10.9%.
• For a taxpayer in tax class 1a with an annual gross salary of EUR 50,000, it will result in an annual net gain of EUR 1,160. This corresponds to a reduction in the tax burden of 19.8%.

As highlighted by Finance Minister Gilles Roth, “thanks to this initiative, we [the Government] are sustainably reducing the tax burden on households. We are thus strengthening their purchasing power, which will also benefit enterprises and businesses.”