Which insurance premiums are deductible?
Article 111 of the Income Tax Act (ITA) governs the investment or provident expenses that are deductible from your tax base. They are listed below, and can be found in more detail here.
- Premiums for civil liability insurance
- Health insurance, cat and dog insurance
- Death, disability and accident insurance
- Life insurance (contract of at least 10 years)
- Outstanding Balance Insurance, single premium option
Let's take the example of Gregory. He arrived in Luxembourg 3 years ago and is the manager of a small team of developers in a start-up. He earns €40,000 net per year. Every year, a total of €5,763 is deducted from his salary in tax and he does not file a tax return.
However, Gregory puts a little more than €250 into a retirement savings plan each month, which he can deduct from his taxable income, in the same way as insurance for civil liability or his health insurance. Here are the details of the amounts that Gregory can deduct from his tax base:
- Business expenses (a lump sum representing his job-related expenses): € 540
- Civil liability portion of car and home insurance premiums (Art. 111): € 672
- Retirement savings: € 3,200
After deducting these savings and insurance limits, Gregory's new net taxable amount is now €35,588. As for the amount of tax, it has been reduced from €5,763 to €4,307, a saving of €1,456.
Not bad, eh? Now let's see how it works in practice.