Taxes in Luxembourg
When living in Luxembourg it is important to know how your income is taxed, and what tax reliefs are available to you.
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 month.
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 percent 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 have been recruited abroad by your company, you are entitled for the "Impatriate tax regime". You must be a Luxembourg resident, or not live 150km away from the Luxembourg border, have been employed based on skills that are not replacing another local employee, and earn a minimum annual salary of EUR 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.
Taxable income 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.
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 calculators that can assist in finding your personal taxable income by just plugging in numbers. Here are some examples:
Salary after tax calculator Luxembourg
There are about 20 income tax brackets that vary from 0 to 40 percent, with a 40 percent cap at earnings over EUR 150,000. 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 you receive by ta authorities that helps an employer calculate correctly. These tax cards are issued automatically up to 30 days after registering at the social security office (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
As a Luxembourg resident there are a certain number of expenses you are entitled to deduct from your taxable income:
- Employment income between EUR 540 to EUR2574
- Pension income of EUR 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 (max. EUR 336 per person)
- Mortgage interest (EUR 1500 limit for the first six years, EUR1125 for the next, and EUR750 for the remaining)
- Private old age pension 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 EUR 1 million or 20 percent taxable income)
- Alimonies to divorced spouse (up to EUR 24,000)
- Lump Sum of EUR 480 (EUR 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 EUR 300 a year, EUR 25 per month or EUR 1 per day.
- Pension earners receive a tax credit of EUR 300 a year.
- Self-employed residents or freelancers are entitled to a credit of EUR 300 a year.
- Parent with children receives an allowance of EUR 76.88 per month per child. A single parent can also receive a tax credit of EUR 750. 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. These rebates have a ceiling of EUR 3600 per year or EUR 300 per month.
- Alimonies for payments to children not part of the household are a maximum EUR 3480 per child.
- If joint taxed couples realises their own professional income they are entitled to a joint abatement of EUR 4500.
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 filing that does not go past a few months is usually accepted. However, a late filing penalty can amount up to 10 percent of your final tax amount or fines up to EUR 1250. Quarterly taxes are due on the 10th of March, June, September and December.
Value Added Tax (VAT) rates are as follows:
- Super-reduced rate: three percent (e.g. foodstuffs, pharmaceuticals, restaurants);
- Reduced rate: six percent;
- Intermediate rate: 12 percent (e.g. adult clothing, wine);
- Standard rate: 15 percent (e.g. alcohol, beer, adult shoes).
The maximum VAT rate is 15 percent, the lowest in the EU.
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 examples is 6.75 percent for Luxembourg City.
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 percent according to the value of property and the beneficiary relationship to the deceased.
Gift tax depends on the relationship of the donor and donee, and rates vary between 1.8 percent to 14.4 percent.
Tax terms (French – German)
Standard of living: niveau de vie – lebensstandard
Income tax: impôt sur le revenue – einkommenssteuer
Tax declaration: déclaration fiscale – steuererklärung
VAT: TVA (Taxe sur la Valeur Ajoutée) – MwSt. (Mehrwertsteuer)
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