Luxembourg tax system: Learn everything you need to know about taxes in Luxembourg, including income tax, tax law and the tax authority, plus how to file a tax return and get a VAT number.
Resident or non-resident?
Luxembourg residents are required to declare their worldwide income, and non-residents of Luxembourg are taxable on their Luxembourg income source only. A resident tax payer means you have been living in Luxembourg for longer than six months consecutively, and short periods of leave are not taken into account.
Non-resident taxpayers refer mostly to the large amount of Luxembourg’s workforce that commutes into the country from bordering countries like France, Germany, and Belgium. It can also refer to a newcomer to Luxembourg within the first six months.
Check with your country of origin on their tax treaty that will either require or exempt double taxation laws, or what paperwork is required to avoid it.
Who is taxed in Luxembourg?
A taxable unit in Luxembourg is a family’s income including husband, wife, and children under the age of 18 years old. This does not mean the income of a child is taxed, but the possibilities for tax breaks from having a child is taken into account.
If one spouse is a resident and the other is not they will be taxed separately instead of jointly (joint income tax rates are generally lower for married couples, same sex marriages included). If you are in a partnership but not married, it is possible to elect to be covered as a joint income if one of the partners (or the non-resident partner) generates 90% or more of their total income in Luxembourg. You must be sharing the same residence in Luxembourg for at least one full year before applying.
Highly Skilled Workers tax regime
If you are living in Luxembourg as a highly-skilled international who has been recruited abroad by your company, you are entitled for the impatriate tax regime. You must be a Luxembourg resident, or not live more than 150 kilometers away from the Luxembourgish border, have been employed based on skills that are not replacing another local employee, and earn a minimum annual salary of €50,000.
A few more conditions must be met, but the advantage is to be able to expense costs such as relocation, school fees, rent and utilities, and even home leave of one trip per year. If you think you might be eligible for the impatriate tax regime, talk to your employer about applying.
Icome tax
Luxembourg income tax comes from income from your own business, from employment, from pensions, investments, rentals, and other miscellaneous items like private assets, capital gains and casual services. If you work in Luxembourg, you will have to pay income tax and follow the Luxembourg income tax law.
Capital gains on the disposal of assets held by individuals are taxable as miscellaneous income. The tax varies according to whether the asset is sold within or after a minimum holding period. There are short-term gains and long-term gains, and exemptions when moving to new dwellings for professional or family reasons.
These income tax categories are added up to determine your net total income, then reduced by applicable deductions to determine your taxable income. There are several online Luxembourg salary calculators that can assist in finding personal taxable salaries in Luxembourg by just plugging in the relevant figures. Two examples include:
There are over 20 income tax brackets that vary from zero to 42%. The balancing out of income tax rates also depend if the individual is single, married, divorced or widowed, with or without children, and over 64 years of age or not.
This is all determined by what is written on your tax card that helps an employer calculate correctly. These tax cards are issued automatically up to 30 days after registering at the social security office (which is mandatory when registering in Luxembourg). A new tax card is applicable in case a resident changes address and civil status, but it’s up to the resident to announce this to the authorities via specific tax form.
Deductions and allowances
When living in Luxembourg as a resident there are a certain number of expenses you are entitled to deduct from your taxable income:
- Employment income between €540 to €2,574
- Pension income of €300
- Social security contributions
- Insurance premiums like life insurance, third-party liability, death, accident, illness, or disability insurance contracted with another insurance company in the EU and outside the EU if the contract has been running at least six month before moving to Luxembourg
- Home savings and home loans
- Debt interest on private loans, credit cards or debit bank account (€336 limit per person)
- Mortgage interest (€2,000 limit for the first six years, €1,500 for the next five years, and €1,000 for the remaining)
- Private old age pension in Luxembourg schemes not before the age of 60 and at the latest 75 years old. Certain conditions apply to time length, age, and monthly annuities.
- Charitable contributions (maximum €1 million or 20% taxable income)
- Alimonies to divorced spouse (up to €24,000)
- Lump sum of €480 (€960 for married couples)
Tax allowances and credits
There are a few different areas where Luxembourg residents can benefit from a few tax reliefs and allowances:
- Employed tax earners are entitled to a tax credit of up to €600 a year, depending on their level of income.
- Pension earners receive a tax credit of €300 a year.
- Self-employed residents or freelancers are entitled to a credit of €300 a year.
- Parents with children used to receive an allowance of €76.88 per month per child – but this has been merged with the family allowance so that the amount paid per child (born after 1 August 2016) is now €265 a month.
- A single parent can also receive a tax credit of €750–€1,500. There are also rebates of taxable income for expenses covering childcare costs for children under 14, and housekeeping costs for domestic work inside the dwelling of the taxpayer.
- If joint taxed couples realizes their own professional income they are entitled to a joint abatement of €4,500.
Tax filing deadlines
The tax year ends 31 December every year in Luxembourg, and a taxpayer must file their return by 31 March the following year. Late filings that do not go past a few months are usually accepted.
However, a late filing penalty can amount up to 10% of your final tax amount or fines up to €1,250. Quarterly taxes are due on 10 March, 10 June, 10 September, and 10 December.
Which tax return do I need to submit?
When filing your income tax return in Luxembourg, you’ll either have to fill out Form 100 (a standard tax return) or form 163 (an annual statement, or décompte annuel).
If you’re an unmarried, salaried employee earning less than €100,000 (with no income from other sources), you’ll be able to file the more simplified annual statement, rather than a full tax return.
If, however, your taxable household income is above €100,000 or someone in your household has an income from more than one source, you’ll need to submit a full return (Form 100)
Filing US taxes from Luxembourg
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so. Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US. You do!
For more information and help filing your US tax returns from Luxembourg, contact Taxes for Expats and see our guide to taxes for American expats.
VAT
Value Added Tax (VAT) rates in Luxembourg are as follows:
- Super-reduced rate: 3% (e.g., foodstuffs, pharmaceuticals, restaurants);
- Reduced rate: 8% (e.g., cleaning, repairs, heating);
- Intermediate rate: 14% (e.g., adult clothing, wine);
- Standard rate: 17% (e.g., alcohol, beer, adult shoes).
LOCAL TAX
Local business tax applies to those who have business in the applicable municipal area and with non-residents who have permanent business establishments there. This rate can vary, but one example is 6.75% for Luxembourg City.
Inheritance tax
Inheritance tax is charged is transfers of wealth from a deceased member is not passed down to a direct line, or if the assets and wealth was in Luxembourg and is not being transferred outside the country. This varies between zero and 48% according to the value of the real estate in Luxembourg and the beneficiary relationship to the deceased.ift
Tax in Luxembourg
Gift tax depends on the relationship of the donor and donee, and rates vary between 1.8% to 14.4%.