POLITICS & INSTITUTIONS - ECONOMY

Taxes

Bonuses, 13th salaries flush €248m into state coffers



Finance minister Pierre Gramegna pictured in parliament in October 2020. A petition to abolish taxes on 13th salaries and bonuses is waiting to be debated by lawmakers and the government Photo: Romain Gamba / Maison Moderne

Finance minister Pierre Gramegna pictured in parliament in October 2020. A petition to abolish taxes on 13th salaries and bonuses is waiting to be debated by lawmakers and the government Photo: Romain Gamba / Maison Moderne

Income tax on end-of-year bonuses and 13th salaries added an estimated €248m in tax income to the state purse, finance minister Pierre Gramegna has said as a debate on abolishing their taxation is pending.

Gramegna (DP) in answer to a parliamentary question said the state on average levied €346m in income tax a month in 2020. The additional €248m raised from bonus and 13th salary payments is an estimate based on the difference between the monthly average during the first 11 months of the year and December, he explained.

With some bonus payments made during the year or 13th salaries split into separate tranches, the amount actually levied should be higher, but the tax administration does not keep specific statistics on this.

A petition launched earlier this year in August reached the necessary signatures to be debated by lawmakers and government representatives, calling for taxation of bonuses and 13th salaries to be abolished.

“If an employee is fortunate enough to receive a 13th-month bonus, and he or she sees the net amount of that bonus arrive at well below the amount of his or her normal salary, that is simply not fair. A bonus awarded to an employee on the basis of merit and dedication to his or her work and company should not be taxed,” the document states.

However, Gramegna said that 13th salaries aren’t taxed higher than a regular salary. “The fact that it looks as if the 13th month is taxed higher is due to the fact that the scale is progressive, and higher wages will also lead to higher taxes,” he said.

Statec reports that bonuses make up a particularly large part of salaries in Luxembourg, the third highest proportion in Europe at 15% (trailing Austria and Portugal) and nearly double the continent’s average of 8%.

While bonuses are thus significant parts of salaries in the grand duchy, they are not distributed evenly across the population: nearly half of all bonuses are awarded either in the finance/insurance sector or the scientific/technical sector, Statec says.

Of the taxes raised from end-of-year bonuses and 13th salaries, around €65m originate from public sector employees, Gramegna said. “Needless to say that in taxation no distinction is made between revenue in the private sector and the public sector,” the minister said.