The tax advantages to marriage or civil partnership

 

Joint declaration

Contrary to the practice in other countries such as Belgium or France, it is not obligatory for everyone to file an annual tax return in Luxembourg.

The obligation applies in the following cases:

• you are a married couple resident in Luxembourg with an income taxable in Luxembourg of over EUR 100,000;
• you have two or more sources of income (two salaries, one salary and a pension, two pensions, one salary and unemployment benefit, etc.) and the sum total of these sources of income exceeds EUR 36,000;
• you receive over EUR 600 in other income not taxed at source, for example rental income or various benefits;
• you have over EUR 1,500 in taxable income from real estate investments, director’s fees, etc.

 

 

As married taxpayers being assessed jointly, if you are both earning a salary, you are therefore required to file an annual income tax return.

On the other hand, if only one of you is working and their income is less than EUR 100,000, there is no obligation to submit an annual declaration. This doesn't mean that you can’t do so, and in certain circumstances it’s very much to your benefit to complete a tax return in order to recover some of the taxes withheld at source on your monthly salary.

In particular, you can deduct certain fees or costs, special expenses such as life insurance, third-party car insurance, top-up health insurance, extraordinary expenses for childcare, and also interest on the mortgage for buying or building your house or flat. All of these deductions will reduce your amount of taxable income and lower your annual tax bill.

You can also take out tax-deductible products to further reduce your taxable income. 

 

In first year of marriage 

If you married during the year, you tax card will be adjusted to take account of your new situation.

When you come to file your annual return, tax class 2 will be applied for the entire year with effect from 1 January. So it doesn’t matter which month you married, you are guaranteed to benefit from a tax reduction when you submit your annual return.

Married outside Luxembourg 

If you were already married before moving to Luxembourg, it’s in your interest to have your marriage abroad recognised. To do this, you both need to go to the civil registrar for the municipality where you live, armed with your passports and marriage certificate duly authenticated according to the regulations of the country where the wedding took place.

The principle 

In Luxembourg, a “PACS” or civil partnership is a type of civil union between two people of the same or different sexes living together as a couple and who have declared their partnership before the civil registrar for the municipality where they live.

This declaration of partnership allows you to enjoy similar rights to those of a married couple. If you live in a partnership you benefit from the same tax relief, in particular on registration fees, inheritance tax and direct taxes.

Joint declaration 

Unlike for married couples, entering into a civil partnership has no impact on your tax card or on the tax deducted at source from your salary every month. You still retain your “single” tax status.

It is when you file your joint annual tax return that you’ll be able to enjoy the same tax advantages as a married couple. Tax class 2 will be applied to you. What is more, you’ll be able to deduct certain fees or costs, special expenses such as life insurance, third-party car insurance, top-up health insurance, extraordinary expenses for childcare, and also interest on the mortgage for buying or building your house or flat. All of these deductions will reduce your amount of taxable income and lower your annual tax bill.

 

In the first year of civil partnership 

If you enter into a civil partnership during the year, this has no impact on the amount of tax deducted at source every month from your salary.

On the other hand, when you file your annual joint tax return, tax class 2 will be applied for the entire year with effect from 1 January of the next year.

 

Having the civil partnership recognised 

If you have already registered your civil partnership abroad before moving to Luxembourg, you can submit a request to the Public Prosecutor’s Office to have your “PACS” recognised and entered in the civil register.

Depending on where you formed your civil partnership, you will have to provide different documents.

Strictly speaking, there is no “best time” to get married or enter into a civil partnership in Luxembourg. In the case of a civil partnership, you have to provide proof of a whole year of partnership before you can see the benefit in your tax class.

The main difference between the two situations is the way in which the partners’ monthly income is taxed.

From the time they are married, for a couple opting to be taxed jointly, one is assessed under tax class 2 and the other at a fixed rate of 15%. By contrast, a civil partnership has no effect on the monthly tax payments of either of its partners.

Ultimately, if we compare the two couples – one married and the other in a civil partnership – the tax deducted at source every month from the married couple will be lower than for the PACS couple. But on balance, their overall level of taxation will be identical. The amounts are corrected when the annual joint tax return is filed.