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:
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:
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.
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:
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;
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.
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').
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:
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.
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:
Non-resident taxpayers must complete the application for an annual adjustment (Form 163 NR F) on page 3 as follows:
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.
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:
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.
Demande en établissement, rectification, inscription d'une modération ou établissement d'un duplicata d'une fiche de retenue pour contribuables résidents (Modèle 164 R F)
Antrag auf Ausstellung, Berichtigung, Eintragung einer Ermäßigung oder Ausstellung eines Duplikates einer Steuerkarte für ansässige Steuerpflichtige (Vordruck 164 R D)
Décompte annuel (personnes physiques résidentes salariées ou pensionnées non soumises à une imposition par voie d'assiette - 163 R)
Lohnsteuerjahresausgleich (ansässige steuerpflichtige Arbeitnehmer und Rentner die nicht einer Besteuerung durch Veranlagung unterliegen - 163 R)
Décompte annuel (personnes physiques non résidentes salariées ou pensionnées non soumises à une imposition par voie d'assiette - 163 NR)
Lohnsteuerjahresausgleich (nichtansässige steuerpflichtige Arbeitnehmer und Rentner die nicht einer Besteuerung durch Veranlagung unterliegen - 163 NR)
Demande en établissement, rectification, inscription d'une modération ou établissement d'un duplicata d'une fiche de retenue pour contribuables non résidents (modèle 164 NR F)
Antrag auf Ausstellung, Berichtigung, Eintragung einer Ermäßigung oder Ausstellung eines Duplikates einer Steuerkarte für nicht ansässige Steuerpflichtige (Vordruck 164 NR D)