On Friday, Finance Minister Gilles Roth presented the key elements of the planned reform for a single tax class to Luxembourg’s parliamentary groups. The long-anticipated reform is a particularly sensitive issue and has been under discussion in the country for several years.
According to our information, Roth outlined the first measures to parliamentary opposition groups. These are intended to implement a reform of personal income tax in Luxembourg, as planned by the two previous governments and confirmed by the current coalition.
No bill has yet been introduced, and sources suggest that the unified tax scale could come into effect no earlier than 2028. This new tax bracket, or single scale, is expected to be based on current tax class 1A and would replace the existing three tax classes, as the Finance Minister proposed during an RTL interview in late March.
Tax class 1A includes single parents, individuals aged 65 or over, and those who are divorced or widowed. It features the steepest progression in tax rates but was eased earlier this year through the introduction of two new brackets.
Under class 1A, taxpayers pay less than under class 1, but more than class 2. This means that single individuals currently in class 1 would receive the most significant tax relief, depending on income. For instance, a gross annual salary of €50,000 could see a reduction of around €2,500 – approximately half of the current rate. With an income of €75,000, the relief would be similar in absolute terms, though proportionally less.
An estimated 15% of people currently in tax class 2 – married individuals under the age of 65 – could face an increase in tax liability. This depends on the income gap between partners. As such, a transition period is being considered, as Roth confirmed in March. According to our information, this phase would last 20 years. This point raises legal questions and is expected to provoke significant debate.
Another contentious issue is the potential impact of individualised taxation on government revenue. Three years ago, Luxembourg’s tax authorities and the Chamber’s Finance Committee estimated that moving all taxpayers to class 2 would result in a “fiscal shortfall” of €1.9 billion. Transitioning to class 1A instead would reduce that figure by roughly half, to under €1 billion. The current government has ruled out introducing a higher top tax rate, which remains at 42%.
It also remains unclear when the next adjustments to the tax scale will be made to reflect inflation. The CSV-DP government adjusted the scales by four indexation levels last year and by a further 2.5 this year. A full adjustment would require an additional 2.5 levels. All other provisions – including those for children, deductions, exemptions, bonuses, and tax credits – are expected to remain unchanged.
The main goal of individual taxation is to reflect modern family structures: whether someone is married, in a civil partnership or single should no longer affect their tax situation. It also aims to provide greater stability, so that individuals are not subjected to drastic changes in taxation following divorce, the death of a partner, or upon turning 65. For some people in tax class 2, individualised taxation would also eliminate the need to repay tax at a later stage. In the long term, it would simplify matters for both taxpayers and the tax administration.
As reported, the concrete proposals were shared with parliamentary groups on Friday. On Tuesday, they will be presented to members of the Chamber of Deputies’ Finance Committee. Roth also stated in March that he intended to consult social partners on the single tax scale reform.
The Ministry of Finance has so far declined to comment further, citing an ongoing “consultation process”.
