{"id":1262,"date":"2025-09-15T13:48:20","date_gmt":"2025-09-15T13:48:20","guid":{"rendered":"https:\/\/www.gsl.lu\/?p=1262"},"modified":"2025-09-15T13:52:33","modified_gmt":"2025-09-15T13:52:33","slug":"towards-a-simpler-tax-in-luxembourg","status":"publish","type":"post","link":"https:\/\/www.gsl.lu\/en\/towards-a-simpler-tax-in-luxembourg\/","title":{"rendered":"Towards a Simpler Tax? The Single Tax Scale in Luxembourg in Perspective"},"content":{"rendered":"
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Context and Government Direction<\/h3>\n

The 2023\u20132028 coalition (CSV-DP) has committed to modernizing the taxation of individuals by working towards a single tax class and presenting a structural reform in 2026, with the aim of simplifying and individualizing the tax system.
Since spring 2025, the Minister of Finance has outlined the philosophy of the reform: merging classes 1, 1A and 2 into a single tax scale, close to the current 1A, to better reflect the diversity of contemporary family situations. The draft bill is expected in 2026 with implementation in 2028, subject to the parliamentary calendar and the budgetary trajectory.<\/p>\n

Current Status of the Work<\/h3>\n

In June 2025, the Finance Committee reviewed the architecture of the single class and related technical issues (shared custody, individualization). These discussions confirm that the reform is actively in preparation, but that the precise parameters (scale, tax credits, adjustments for couples, transitional period) remain to be decided.<\/p>\n

Emerging Key Principles<\/h3>\n
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    Simplification:<\/strong> one individual tax class for all, with a single scale close to the current class 1A, ending the \u201c1 \/ 1A \/ 2\u201d logic.<\/p>\n<\/li>\n

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    Family neutrality to be built:<\/strong> individualization does not mean ignoring family burdens; compensatory mechanisms (targeted credits, allowances, partial splitting?) still need to be defined to avoid unintended effects, particularly for single-income couples.<\/p>\n<\/li>\n

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    Indicative timeline:<\/strong> draft law in 2026, application in 2028, with likely transitional measures.<\/p>\n<\/li>\n<\/ul>\n

    Who Might Gain, Who Might Lose? (at this stage)<\/h3>\n

    Likely winners:<\/strong><\/p>\n

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      Singles and those currently in class 1A (single parents, widows\/widowers, \u2265 65 years old), if the single scale indeed aligns with 1A while being softened at the lower brackets.<\/p>\n<\/li>\n<\/ul>\n

      Points of concern:<\/strong><\/h3>\n
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        Married couples benefiting from class 2: without an adjustment mechanism, individualization may increase the tax burden on single-income couples. This risk has already been highlighted in political debates.<\/p>\n<\/li>\n<\/ul>\n

        Key takeaway:<\/strong> the detailed design of tax credits and adjustments for couples\/families will be decisive for the reform\u2019s fairness and acceptability.<\/p>\n

        Link with Measures Already in Force in 2024\u20132025<\/h3>\n

        While awaiting the structural reform, the government adopted a 2025 tax package (rate relief, targeted measures for 1A, young employees, etc.), aimed at supporting purchasing power and competitiveness, while starting the shift towards more individualization.<\/p>\n

        Practical Impacts to Anticipate (Companies and Individuals)<\/h3>\n

        For companies (Payroll & HR):<\/strong><\/h4>\n
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          Payroll setup: move to a 100% individual logic (end of differentiated classes), with revised advance payment rules and salary simulators.<\/p>\n<\/li>\n

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          \u201cNet\u201d compensation: potential renegotiation of packages for former class 2 profiles if the reform leads to an increase; adaptation of benefits policies (family allowances, bonuses, etc.).<\/p>\n<\/li>\n

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          Communication: support for cross-border and resident employees during the transitional period (2026\u20132028).<\/p>\n<\/li>\n<\/ul>\n

          For individuals:<\/strong><\/h4>\n
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            Budgeting: assess the effect of 100% individual versus joint taxation, depending on the income distribution within the couple.<\/p>\n<\/li>\n

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            Life choices and status: possible changes in the fiscal impact of marriage\/PACS\/cohabitation, compared to the current class 2.<\/p>\n<\/li>\n

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            Procedures: expect increased use of pre-filled tax returns and digital tools, already reinforced by 2025 measures.<\/p>\n<\/li>\n<\/ul>\n

            Illustrative Examples (Indicative Only)<\/h3>\n
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              Single employee (annual income \u20ac55,000):<\/strong> with a single scale close to 1A, tax decreases or remains stable compared to current class 1, depending on bracket calibration.<\/p>\n<\/li>\n

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              Married dual-income couple (\u20ac65,000 + \u20ac45,000):<\/strong> each spouse taxed separately; moderate effect if joint credits\/adjustments are provided.<\/p>\n<\/li>\n

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              Married single-income couple (\u20ac90,000 + \u20ac0):<\/strong> risk of higher tax compared to current class 2 without corrective mechanisms, hence the importance of targeted credits (children, family burdens).<\/p>\n<\/li>\n<\/ul>\n

              Open Questions (end of August 2025)<\/h3>\n
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                Neutralization mechanism for couples: partial splitting? spousal quotient? refundable credits? (to be decided).<\/p>\n<\/li>\n

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                Length of the transitional period and exact entry into force date (target 2028, to be confirmed by law).<\/p>\n<\/li>\n

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                Coordination with other schemes (allowances, tax credits, benefits in kind, cross-border workers).<\/p>\n<\/li>\n<\/ul>\n

                Transitional Period<\/h3>\n

                A 20-year transitional period is envisaged. This measure concerns couples already married or in a PACS, who could retain the benefits linked to class 2 during this period, before gradually shifting to the \u201cR\u201d scale. Some taxpayers may also choose to adopt the new regime earlier, but without the possibility of reverting back.<\/p>\n

                GSL\u2019s View<\/h3>\n

                The single class is consistent with societal developments and international standards for tax individualization. The key will be the design of compensatory measures to preserve fairness between family models and avoid penalizing single-income couples. For companies, anticipation (payroll cost simulations, communication) will be crucial during the transitional phase.<\/p>\n

                Do you have additional questions about the tax reform or its impacts?
                Feel free to contact us \u2014 we\u2019ll be glad to assist you.<\/p>\n<\/div>

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