Income tax in Luxembourg

Luxembourg income tax law and tax rates

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Luxembourg income tax rates for individuals are among the lowest in Europe, resulting in Luxembourg becoming known for being a tax haven.

Based on average income statistics and the income tax rate, the standard of living in Luxembourg is relatively high but taxes in Luxembourg are comparatively low compared to neighbouring European countries. For individuals, the basic types of tax and social security costs are income tax (impôt sur le revenu des personnes physiques), social security (sécurité sociale), investment income and capital gains.

This guide to Luxembourg income tax law & tax rates includes:

 

What is taxable personal income in Luxembourg?

There are eight categories of taxable income which, added together over the year, determine the total taxable income:
 

  • Commercial/business profits: if you own a business
  • Profits from agriculture and forestry: if you own farmland in use for commercial activity
  • Profits derived from self-employed professions 
  • Net income from employment: for employers who work in Luxembourg
  • Net income from pensions and/or annuities: tax on any monthly pension income
  • Net income from investments (movable capital)
  • Net income from rental of property
  • Other net income (including capital gains)
     

Tax classes

Luxembourg income tax liability is based on the individual's personal situation (e.g. family status). For this purpose, individuals are granted a tax class. Three tax classes have been defined as:

Class 1 For single persons.
Class 2

For married persons as well as civil partners, married non-resident

taxpayers who are not separated, and non-resident civil partners.

Class 1a

For single persons with children as well as single taxpayers aged

at least 65 on 1 January of the tax year.

 

Tax is calculated in accordance with a sliding increase table (see below), ranging from zero% to 42% depending on your income. A solidarity tax of 7% of taxes must also be paid (9% for those earning more than €150,000 in tax class 1 and 1a, or more than €300,000 in tax class 2). Here are examples below for income tax owed from 2018 from Pricewaterhouse Coopers:

Single taxpayer (Class 1/Class 1a) 

 

Taxable salaried income 0 - 20,000 38,700 58,700 77,400 96,700  116,000 135,500 155,000
Income tax Class 1

921
€5,317 €13,081 €21,177 €29,231 €37,456 €45,802 €54,242
Income tax Class 1a €0 €4,271 €12,325 €20,420 €28,474 €36,699 €45,045 €53,486


Married taxpayer (Class 2)

 

Taxable salaried income 0 -€20,000 €38,700 €58,000 €77,400 €96,700 €116,000 €135,500 €155,000
Income tax Class 2 0 €1,675 €5,113 €10,635 €18,110 €26,164 €34,302 €42,439

 

To calculate your own income tax visit an online income tax rate calculator.

Luxembourg tax haven

Luxembourg tax brackets for 2018

Residents in Luxembourg are taxable on their income in 23 brackets up to a maximum rate of 42%.

Taxable income bracket

 

Tax rate on income in bracket

From

To

%

0

11,265

0

11,266

13,173

8

13,137

15,009

9

15,009

16,881

10

16,881

18,753

11

18,753

20,625

12

20,625

22,569

14

22,569

24,513

16

24,513

26,457

18

26,457

28,401

20

28,401

30,345

22

30,345

32,289

24

32,289

34,233

26

34,233

36,177

28

36,177

38,121

30

38,121

40,065

32

40,065

42,009

34

42,009

43,953

36

43,953

45,897

38

45,897

100,002

39

100,002

150,000

40

150,000

200,004

41

>200,004

 

42

All taxpayers must make an annual tax declaration to the relevant tax office, depending on your area of residence.

You must file a tax return by 31 March every year. To check which your area you come under, see the ‘Administration des Contributions’ website and look under Profil de l'Administration/ Adresses et Competences/ Section des Personnes Physiques. They also include a summary of direct taxes in English. If you disagree with your tax assessment, you can appeal — within 3 months — to the tax office or Directorate for direct taxes.

Employee Income Tax Exemptions

Taxable employment income usually includes all gains and benefits in cash earned as an employee, however there are a few exemptions:

Company car

Tax benefits for company cars is based on the mileage multiplied by the kilometre cost of the car. A mileage logbook will determine the numbers, otherwise a lump-sum method is an option.

Free accommodation

A 25% reduction can be applied to the total amounts that equal monthly rent and other rental charges, and 17.5% if accommodation is furnished.

Employment related expenses

Expenses relate to your job can be tax deductible. There is a yearly lump sum of €540 to deduct, as well as commuting expenses (at a maximum of €2574).

Gifts

Any gifts by seniority can be tax exempt at a maximum of €4500.

Overtime pay

Overtime pay, working night shifts, Sundays or public holidays have tax exempt benefits.

Severence pay

Depending on the conditions, severance pay also has tax exemptions.

Occupation pension schemes

Any employer's contributions to their pension scheme are subject to a flat tax rate of 20%, and benefits received are tax-exempt in Luxembourg.

Lunch vouchers 

A lunch voucher from work that is for example €8.40 has a tax benefit of €2.80

Interest subsidies

If you have a loan granted by the employer at an interest rate lower than 1.5% there are tax breaks -- up to €3000 for mortgage loans toward a main residence, and up to €500 for personal loans.

Income tax Luxembourg

Social Security Rates

Social security rates apply to employees and employers and are based on the gross salary including benefits in kind. They are also tax deductible. All those who earn a salary must submit an 'Assurance-Dépendance’. Social security contributions for employees average 12.45% in 2018.

For a single person, €1,500 of investment income is tax free and for a married person, €3,000 is tax free. Half of the dividends from European Companies are exempted. Capital gains are mostly taxable at the marginal rate, with a tax exemption of €50,000 for a single person and €100,000 for a married couple.

Company Tax Rates

Since the start of 2018, corporate income tax rates have stood at 18%. According to data from KPMG, the aggregate income tax rate for companies in Luxembourg City will be 26.01% in 2018. Start-ups are taxed at the lower rate of 15% if they have incomes of below €25,000. A third bracket also exists for companies making between €25,000 and €30,000.

VAT rates

  • The maximum VAT rate is 17%, the lowest in the EU.

  • Super-reduced rate: 4% (e.g. foodstuffs, pharmaceuticals, restaurants);

  • Reduced rate: 8%;

  • Intermediate rate: 14% (e.g. adult clothing, wine);

  • Standard rate: 17% (e.g. alcohol, beer, adult shoes).

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)

Tax advisors in Luxembourg

Tax advisors in Luxembourg can be found here. Many tax advisors and services offer multilingual services.

Luxembourg income tax law

Loi concemant l’impot sur la revenueI (income tax law) of Luxembourg was put into place in December 1967, with the latest reform in force 46 years later, in January 2013.

The Luxembourg law #7020 introduced new tax measures for individuals and companies and was known as a ‘game changer’, introducing new measures which became applicable in January 2017. Learn more here.

Luxembourg income tax rates: comparison with other countries


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