Deducting job-related expenses (business expenses)
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Expenses incurred directly in order to acquire, ensure, or maintain income are considered business expenses. Taxpayers may claim certain expenses having a direct economic link to taxable income. Expenses relating to personal lifestyle, such as expenses for clothing or housing, are not deductible.
In connection with their job, taxpayers may deduct the following professional expenses:
- a flat-rate allowance for travel expenses for journeys between the taxpayer's home and work place;
- business expenses (other than travel expenses);
- the increased flat-rate allowance for business expenses incurred by disabled employees.
All of these effective expenses are tax deductible to the extent that they exceed an annual allowance of EUR 540 per employee. This is because the tax deducted at source by the employer already takes into account:
- the flat-rate allowance of EUR 540 for expenses incurred in connection with the employee's job;
- the flat-rate allowance for the travel expenses listed on the employee's tax card.
Who is concerned
Prerequisites
Travel expenses
All employees are entitled to an allowance for travel expenses which is based on the distance between their home and work place, and capped at EUR 2,574 per year. Where the distance between their home and work place is less than or equal to 4 distance units (distance in kilometres travelling in a straight line between the administrative centres of the two communes), taxpayers are no longer entitled to the minimum flat-rate allowance of EUR 396 (discontinued on 1 January 2013). Where the distance is greater than 4 distance units, the deductible flat allowance is EUR 99 per distance unit up to a maximum of EUR 2,574 (EUR 2,970 until 31 December 2012).
Should the taxpayer's situation change due to a change in residence or work place, their new situation is only taken into account if it results in an increase in the number of distance units. In that event, the change in the allowance takes effect as from the beginning of the month in which the change in situation occurs.
In the event of a decrease in the number of distance units, the taxpayer retains the more advantageous travel expense deduction until the end of the fiscal year.
The allowance is granted regardless of the means of transport used. Where the taxpayer is not subject to taxation for the entire year, the allowance is calculated as 1/12th of the amount deductible for each full month of taxation, with the current month being considered a full month.
The allowance covers all business expenses in connection with taxpayers' travel between their home and their workplace. Taxpayers may not deduct effective expenses that are higher than the allowance for travel expenses.
Professional expenses (other than travel expenses)
Each employee receives an annual flat-rate allowance of EUR 540 for expenses related directly to their job. If their business expenses exceed the annual flat-rate allowance of EUR 540, the employee may deduct the actual amount of their expenses.
Covered expenses include the following:
- membership fees to professional chambers or organisations;
- professional books and journals used exclusively or almost exclusively for the exercise of a professional activity, excluding encyclopedias and dictionaries;
- standard professional clothing, and the costs of cleaning and care thereof;
- work instruments used exclusively or almost exclusively (90% or more) for professional purposes (e.g., use of a personal computer, expenses relating to the maintenance of a home office, etc.).
For work instruments for which the purchase price is less than or equal to EUR 870 and for which the usual duration of use is less than one year, the taxpayer may deduct the entire purchase price in the same year. If the purchase price is over EUR 870, or if the usual duration of use exceeds one year, the work instrument must be depreciated over more than one year using the straight-line method (e.g., computers for professional purposes only are generally depreciated over a 3-year period). As a matter of fact, expenses relating to the use of a personal computer as well as expenses relating to the maintenance of a home office may be treated as business expenses if the taxpayer can prove that they are used exclusively or almost exclusively (90 % or more) for professional purposes, based on objective and verifiable criteria;
- expenses for the purpose of updating the taxpayer's professional knowledge so that they are better able to fulfil the requirements of their profession by improving their qualifications, or to facilitate their advancement in their profession, provided their professional situation does not fundamentally change as a result of the professional development course taken.
The increased flat-rate allowance for business expenses incurred by disabled employees.
Under certain conditions, employees are entitled to an increase in the maximum amount that may be deducted as professional expenses due to their disability. The increase is based on the rate of reduction in their work capacity, to the extent that such a reduction is not related to the employee's age.
The increased annual flat-rate allowances for business expenses applicable to employees with reduced work capacity are as follows:
| Rate of reduction in work capacity | Increased annual flat-rate allowance |
|---|---|
| from 25 % to 35 %, exclusive | EUR 645 |
| from 35 % to 45 %, exclusive | EUR 675 |
| from 45 % to 55 %, exclusive | EUR 780 |
| from 55 % to 65 %, exclusive | EUR 825 |
| from 65 % to 75 %, exclusive | EUR 885 |
| from 75 % to 85 %, exclusive | EUR 930 |
| from 85 % to 95 %, exclusive | EUR 960 |
| from 95 % to 100 %, exclusive | EUR 1,020 |
Persons whose central vision is non-existent or less than 1/20 of normal vision, as well as to people who are disabled to such an extent that they cannot survive without the assistance and care of another person, are entitled to an increased annual flat-rate allowance of EUR 1,515. This increased allowance may not be combined with the amount shown in the table above.
How to proceed
Deduction of professional expenses when filing an income tax return
Employees, whether residents or non-residents, must report all of their income received in connection with a salaried activity on page 7, 'net income from salaried activity' of the 'Income Tax Return' form (Form 100).
Business expenses relating to non-exempt income from a salaried activity exercised by a single or married taxpayer (holder of the principal tax card) must be recorded in the first column. The non-exempt income of the taxpayer's spouse or partner (if the partners are paying jointly) should be reported in the second column.
(See, in this regard: 'Completing one's income tax return as a resident' and 'Completing one's income tax return as a non-resident').
Reporting business expenses
It should be noted that the payroll tax scale already takes into account flat-rate business-expense allowances in the amount of EUR 396 (for travel expenses, discontinued as from 1 January 2013) and EUR 540 (excluding travel expenses). However, these allowances are not taken into account in the income tax scale. Therefore, employees must report as follows on page 7 of the income tax return form:
- Boxes 749 to 752: employees who have incurred expenses relating to their salaried activity amounting to less than EUR 540 per year—or EUR 45 per month, if they were not taxed in Luxembourg for the full year—report the minimum flat-rate allowance of EUR 540 (increased, as applicable, in the case of disability) in boxes 749 to 752;
or - boxes 753 to 756: employees who have incurred expenses relating to their salaried activity amounting to more than EUR 540 per year—or EUR 45 per month, if they were not taxed in Luxembourg for the full year—report the actual amount of their expenses in boxes 753 to 756. Taxpayers must attach a breakdown of the actual expenses as well as supporting documentation;
- boxes 757 to 760: the minimum flat-rate allowance of EUR 396 for travel expenses (discontinued as of 1 January 2013);
- boxes 761 to 764: the flat-rate allowance for the distance between home and the work place if greater than 4 distance units (this amount should be indicated under the "FD" field code on the compensation and tax withholdings certificate, or the tax card);
- Boxes 765-768: place of work
- if the taxpayer has more than one work place, boxes 781-796 must be filled out.
Travel expenses (frais de déplacement - FD) are listed on the compensation statement issued by the employer at the end of the year. If the sum of EUR 1,980 appears on that certificate, then EUR 1,980 must be entered in box 761 and EUR 396 must be entered in box 757 of the income tax return.
If no travel expenses appear on the compensation certificate, then EUR 396 must be entered in box 757.
Deduction of professional expenses when applying for an adjustment to tax withholdings by annual adjustment
Employees (whether residents or non-residents) who do not meet the conditions for filing an income tax return may report business expenses in excess of the minimum flat-rate allowance of EUR 540 (excluding travel expenses), the increased flat-rate allowance in case disability, and the flat-rate allowance for travel expenses that exceed EUR 396 (change of domicile or work place during the year) using the annual adjustment method.
Resident taxpayers must complete the application for an annual adjustment (Form 163 R F) on page 3 as follows:
- in boxes 301-301: indicate the place of work;
- if the professional expenses are greater than EUR 540, a breakdown of actual costs must be included in an annex (on a separate sheet of paper).
Non-resident taxpayers must complete the application for an annual adjustment (Form 163 NR F) on page 3 as follows:
- in boxes 301-301: indicate the place of work;
- if the professional expenses are greater than EUR 540, a breakdown of actual costs must be included in an annex (on a separate sheet of paper).
These documents must be sent to the competent Tax Office for tax withholdings on wages and salaries (bureau d’imposition de la retenue d’impôt sur les traitements et salaires). The competent office depends on the employee's domicile.
The adjustment request may also be submitted directly online via MyGuichet.lu, by filling out an interactive questionnaire.
Deduction of professional expenses through a listing on the tax card
Both resident and non-resident employees may apply to have the following business expenses listed on their on their tax card: business expenses exceeding the minimum flat-rate allowance of EUR 540 (excluding travel expenses); the increased flat-rate allowance in the case of disability; and the flat-rate allowance for travel expenses exceeding EUR 396 (change in domicile or work place during the year).
In that case, the taxpayer completes:
- form 164 R for residents;
or - form 164 NR for non-residents.
The form must be accompanied by all necessary supporting documentation and by the original of the tax card.
These documents must be returned to the competent Tax Office for tax withholdings on wages and salaries. The competent office depends on the employee's domicile.
The Luxembourg Inland Revenue (Administration des contributions directes - ACD) reserves the right to request additional supporting documents as part of the process of verifying any information, statements, applications, declarations, claims or appeals submitted to its offices.
Online services and forms
Who to contact
-
Luxembourg Inland Revenue (ACD)
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
Please click on the link above to find the competent department.
Related procedures and links
Procedures
Links
Further information
Legal references
-
Loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
-
Règlement grand-ducal modifié du 7 mars 1969
portant exécution de l'art. 107, al. 7 de la loi concernant l'impôt sur le revenu (forfait majoré pour frais d'obtention des salariés invalides et infirmes)
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