Moien,
I reviewed [https://guichet.public.lu/en/citoyens/impots-taxes/pension-rente/depenses-deductibles/contrat-prevoyance.html](https://guichet.public.lu/en/citoyens/impots-taxes/pension-rente/depenses-deductibles/contrat-prevoyance.html). Pillar III plan requires at least 10 year committment although early termination options exist. I understand that contibutions up to 3200 euros per year are tax deductable. Suppose my tax rate is 30% so annual tax savings = 960 euros (3200 * 0.3). In five years, I will contribute 16000 euros. It is possible that in five years my, US-based, employer will transfer me back. I will have no Luxembourg-based income from that point onward.
What happens if I decide to terminate Pillar III plan at that point. It is stated that ” The **early repayment of savings**, normally excluded before the minimum subscription period of 10 years or before the age of 60, is penalised by [taxation at the normal rate of the total amount reimbursed](https://guichet.public.lu/en/citoyens/impots-taxes/pension-rente/perception-pension/plan-prevoyance-vieillesse.html). ” Ok, if so, my local income for that year will be only 16000 euros. However, salaried income below 20000 euros is not taxed at all ([https://taxsummaries.pwc.com/luxembourg/individual/taxes-on-personal-income](https://taxsummaries.pwc.com/luxembourg/individual/taxes-on-personal-income)).
Does it mean my 16000 euros withdrawal will go tax-free? What am I missing?
Merci!
2 comments
>I understand that contibutions up to 3200 euros per year are tax deductable. Suppose my tax rate is 30% so annual tax savings = 960 euros (3200 * 0.3).
For clarification: The savings won’t be based on the average tax rate, but your top tax rate that is being reduced (since the deduction lowers your overall taxable income). If you average tax rate is 30%, then your savings will be more substantialy than 960€
>The early repayment of savings, normally excluded before the minimum subscription period of 10 years or before the age of 60, is penalised by taxation at the normal rate of the total amount reimbursed.
This is probably poorly translated. The conditions above the quoted paragraph set out that you can’t be paid out the capital before turning 60. On top of that, you have to sign up for a minimum term of 10 years (i.e. you can’t sign out at 51, get tax deductions for 9 years, and get out on your 60th birthday).
BTW: I suspect that you’d have to declare your Lux income in the US under the double-taxation treaty, no?
Your analysis is correct. The only aspect where I am not sure is related to the taxation of the US-based revenue. In detail, you will have to fill out Form 100 in Luxembourg, and I am not sure if you have declare, or worse, pay taxes in Luxembourg on that revenue + spouse’s, as applicable.