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.This guide to Luxembourg’s tax system includes:
- Resident or non-resident?
- Who is taxed in Luxembourg?
- Highly Skilled Workers regime
- Income tax
- Tax card
- Deductions and allowances
- Tax allowances and credits
- Tax filing dealines
- Local tax
- Inheritance tax
- Gift tax
- Tax terms (French and German)
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.
- 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)
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.
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 LuxembourgDespite 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.
- 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 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 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.
Gift tax depends on the relationship of the donor and donee, and rates vary between 1.8% to 14.4%.
- Standard of living: niveau de vie in French, Lebensstandard in German
- Income tax: impôt sur le revenue in French, Einkommenssteuer in German
- Tax declaration: déclaration fiscale in French, Steuererklärung in German
- VAT: TVA (Taxe sur la Valeur Ajoutée) in French, MwSt. (Mehrwertsteuer) in German