The reform of Luxembourg’s personal income tax system has taken a significant step forward. The draft bill, which was first presented to the Finance Committee on 29 September, received approval from MPs on Monday.
This marks a key milestone, moving the legislation closer to completion. However, a plenary debate and the formal final vote in parliament are still required before the bill can become law.
Under the proposed legislation, the current three tax classes for individuals (Classes 1, 1A, and 2) would be abolished. Instead, a single unified tax schedule, known as Class “U”, would be introduced and applied to all taxpayers.
The main beneficiaries of the reform are expected to be single individuals, as the new “U” class will follow the current, more favourable rate of Class 1A rather than Class 1.
In contrast, some married couples, especially those where one partner earns almost all of the household income, may face disadvantages.
To ease the transition for these households, the reform includes a 25-year transitional period, giving couples time to adjust to the new tax structure.
If parliament gives its final approval, the reform will take effect on 1 January 2028. The government estimates that the measure will cost the state around €850 million in the first year of implementation.
