of net income, deductible every single year
flat tax, instead of a marginal rate up to 45.78%
the deadline — the ceiling cannot be carried forward
The RCPi in two lines
Since 1 January 2019 (law of 1 August 2018), self-employed workers have had access to a tool that used to be reserved for employees: the supplementary pension scheme (RCPi). Contributions are deductible as special expenses under Article 110, no. 3a of the Income Tax Law (LIR).
The point of this article is not the principle — it is the arithmetic. Below, what the scheme is actually worth, in euros.
Who is eligible
Four profiles, one condition: being personally affiliated as a compulsory insured.
Traders and craftsmen
Personally affiliated as compulsory insured to a Luxembourg or foreign social security scheme.
Liberal professions
Doctors, lawyers, architects, consultants, and any activity covered by Art. 91(1)2 LIR.
Managing partners of a SARL
Holding more than 25% of the shares and carrying the business permit; only the day-to-day management remuneration counts.
Directors of a SA
For the day-to-day management remuneration, and for directors' fees when personally affiliated for them.
A SARL partner who is not a manager usually earns neither Art. 10 LIR income nor Art. 95(6) LIR income: his deductible limit is zero. And a non-resident can only deduct if he obtains tax assimilation to a resident under Art. 157ter LIR.
The ceiling: 20% of net income
The deductible limit equals 20% of the sum of net income under Art. 10, nos. 1 to 3 LIR for which you are personally affiliated as a compulsory insured, plus day-to-day management remuneration (Art. 95(6) LIR) that has not already been used to fund a company pension scheme. Income exempted in Luxembourg under a double tax treaty does not count.
The ceiling is annual and cannot be carried forward. Contribute less than 20% in a given year and the unused headroom is lost for good. Hence the value of estimating your net income before 31 December, not in April.
The real cost: 20.9%
Contributions are not tax-free: the insurer withholds a flat tax on your behalf. That is precisely what makes the scheme attractive — the flat rate replaces your marginal rate.
The scheme only creates value if your marginal tax rate exceeds 20.9%. Below that, it costs you money.
A worked example
A single self-employed professional (tax class 1) with €100,000 of net professional income, marginal rate 41.73% (39% plus the 7% employment fund contribution). Maximum deductible contribution: €20,000.
invested in the contract
in your pocket
Figures are illustrative. Your actual saving depends on your tax class, your other special expenses and your effective marginal rate — it has to be computed on your own file.
What to watch out for
The ceiling evaporates
Unused headroom in year N cannot be topped up in year N+1. Under-contributing is a permanent loss, not a deferral.
The capital is locked
Before retirement age, contributions can only be repaid if the amounts paid in are below three times the monthly minimum social wage, or if you lose your affiliation and are no longer covered by Luxembourg health insurance.
No benefit at all in two cases
If your marginal rate is at or below 20.9%, the flat levy costs more than it saves. And a non-resident who does not meet the Art. 157ter LIR assimilation conditions simply cannot deduct anything.
How to set it up
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1
Estimate your net income for the current year. The whole optimisation rests on this figure, so it has to be produced before year-end, from up-to-date bookkeeping.
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2
Compute the ceiling. 20% of that net income, restricted to the income for which you are personally affiliated and taxable in Luxembourg.
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3
Subscribe to an approved scheme. With the insurer of your choice, under the amended law of 8 June 1999 on supplementary pension schemes.
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4
Pay before 31 December. The insurer withholds the 20% flat tax and the 0.9% remuneration tax, and invests the balance.
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5
Claim the deduction. Keep the insurer's certificate and report the contribution as a special expense in your income tax return (Form 100).
Why Galux
The RCPi is only as good as the figure it is built on. Our job is to close your year early enough to give you a reliable net income estimate, size the contribution to the euro, and carry the deduction all the way into your tax return.
the ceiling we recompute for you every year
the deadline we track, before it is too late
of the paperwork handled, from certificate to Form 100
We compute your ceiling and your saving on your own figures.
Talk to an expert