In 2025, Luxembourg will implement a major tax reform, introducing adjustments to income tax, relief for businesses, and measures benefiting young workers. These changes aim to reduce the tax burden, modernize taxation, and enhance the country’s attractiveness.

Changes for Individuals

Revision of the Tax Brackets

  • Adjustment of 6.5 tax brackets between 2024 and 2025 to compensate for inflation.
  • A family earning €75,000 will see their tax reduced by 14.7%.

Exemption for Minimum Social Wage

  • Employees earning between €1,800 and €3,000 gross per month will benefit from an exemption of €81/month through the Minimum Social Wage Tax Credit (CISSM).

Support for Young Workers

  • A tax-exempt bonus of 75% on an amount between €2,500 and €5,000 will be granted to young people under 30 on permanent contracts.

Assistance for Single-Parent Families

  • The Single-Parent Tax Credit (CIM) will allow single parents earning up to €52,400 per year to pay no income tax.

Increased Profit-Sharing Bonuses

  • Companies will be able to distribute up to 7.5% of their profits as tax-exempt bonuses (up from 5% previously).

Changes for Businesses

Reduction in Corporate Tax (IS)

  • For businesses earning less than €175,000, the rate decreases from 15% to 14%.
  • For those exceeding €200,000, the rate drops from 17% to 16%.

Exemption of ETFs from Subscription Tax

  • Objective: Stimulate investment in listed funds and strengthen Luxembourg’s financial market.

Easier Deduction of Borrowing Costs

  • Independent businesses will have more flexibility in deducting their interest expenses.

💡 Example: A small business looking to purchase a new warehouse will be able to reduce its tax burden thanks to the new loan deductibility rules.

Integration of EU Directives

Directive (EU) 2020/285: Simplification for Small Businesses

  • Fewer administrative formalities for businesses under the Special Small Business Regime (RPE).

Directive (EU) 2022/542: VAT Rate Revisions

  • Harmonization with EU regulations for greater clarity and transparency.

Modernization of Tax Circulars

  • Clarification of obligations to reduce errors and simplify tax procedures.

Conclusion

The 2025 tax reform marks a key milestone for Luxembourg, reducing the tax burden on households while supporting business competitiveness. By adapting its tax framework to current economic challenges, the country enhances its attractiveness while promoting more inclusive growth. It remains to be seen how these measures will concretely benefit taxpayers and investors.

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