Taxes in Luxembourg

Luxembourg has one of the most comprehensive tax systems in the world. This means you can expect to pay many different types of taxes while living there, whether you’re a resident or a citizen. Internationals will be happy to hear that Luxembourg offers special income tax benefits to workers recruited from abroad.

Wise offers services that can help you transfer your funds to Luxembourg at the mid-market exchange rate with transparent fees, which can be particularly valuable when relocating. Their multi-currency account allows you to hold, manage, and spend money in multiple currencies, making it easier to handle the transition period when you might still have financial commitments in your home country while establishing yourself in Luxembourg.

Keep reading for more, including:

The tax system in Luxembourg

The Luxembourg Inland Revenue (Administration des contributions directes – ACD) oversees the country’s tax system. Luxembourg’s tax year runs alongside the calendar year, from 1 January to 31 December.

As a foreigner working in Luxembourg, you’ll need to pay tax on income from employment and any businesses you own. Taxes levied at the federal level include personal income tax, corporate tax, value-added tax (VAT), and inheritance tax. Property and municipal business taxes are levied at a local level.

Luxembourg’s tax system is generally quite complicated, with employment income taxed across 23 progressive brackets. However, the top tax rate is only 42% – lower than in many neighboring European countries.

What is new about Luxembourg taxes in 2026?

Income tax rates and bands in Luxembourg remain the same for 2026 as they were for 2025. Additionally, there have been no changes in corporate tax or VAT tax rates/thresholds.

The key changes announced in the tax package for 2026 include:

• 20% income tax credit for individuals investing at least €10,000 in new startups, up to a maximum credit of €100,000
• Increase in pensions contribution rates from 24% to 25.5%

Who pays tax in Luxembourg?

If you’re a foreigner living in Luxembourg, you’re generally liable to pay income tax and file a tax return. Meanwhile, Business owners in Luxembourg may be subject to corporate tax and VAT.

Your tax liability in Luxembourg varies depending on your residency status. Residents must declare their worldwide income, but non-residents are only taxable on their income from within Luxembourg.

To be classified as a resident taxpayer, you must have lived in Luxembourg for more than six consecutive months. If you lived in Luxembourg for less than six months, you’ll be considered a non-resident taxpayer.

Luxembourg has a large non-resident base, primarily due to people commuting into the country from bordering countries such as France, Germany, and Belgium.

How do Luxembourg taxes work for expats?

If you move to Luxembourg with your spouse, your income will likely be taxed jointly. This can be preferable as married couples’ income tax rates are generally lower.

If one spouse is considered a resident and the other is not, they are taxed separately unless requesting joint taxation. If you are in a partnership but not married, your income can be covered as a joint income if one of the partners (or the non-resident partner) generates 90% or more of its total income in Luxembourg.

Send Money to Luxembourg for Tax Payments

If you need to transfer funds from abroad to cover your Luxembourg tax obligations, Wise offers a cost-effective solution with the mid-market exchange rate and transparent, low fees. This way, Wise can help you save money when transferring funds to pay your Luxembourg taxes.

Many expats maintain bank accounts in their home countries while living in Luxembourg. When tax season arrives, using Wise can help you avoid the hidden fees and unfavorable exchange rates that most providers typically charge for international transfers. This can be particularly valuable when making larger transfers for annual tax payments.

Wise has high transfer limits (usually equivalent of 1 million GBP in most currencies), and offers automatic fee discounts on large transfers over 20k GBP (or equivalent in other currencies).

Impatriate tax regime

Highly skilled workers recruited from abroad may qualify for Luxembourg’s impatriate scheme.

From 2025, the scheme enabled foreign employees to benefit from a 50% tax exemption on their income, capped at €400,000. This benefit is available to qualifying workers for up to eight years.

To qualify, expats must be tax residents and conduct work that isn’t replacing that of a local employee. They must also have a basic annual salary of at least €75,000.

Luxembourg’s double taxation treaties

Luxembourg has tax treaties with all EU countries and many non-EU states to prevent double taxation. These agreements ensure you don’t pay tax twice on the same income when you’re subject to taxation in multiple countries.

For expats managing finances across multiple tax jurisdictions, keeping your money transfers cost-efficient is important. 

Wise can help you move money between countries at the mid-market exchange rate with transparent fees, which is particularly useful when you need to repatriate funds or manage tax payments in different countries. Their multi-currency account lets you hold balances in multiple currencies, making it easier to manage your finances across borders.

Types of tax in Luxembourg

Income tax

Luxembourg levies income tax on earnings from employment, self-employment, pensions, investments, rented property, and other miscellaneous items like private assets and capital gains.

Regular taxpayers usually have their contributions deducted automatically from their salaries under the country’s pay-as-you-earn (PAYE) system. However, they must still file an income tax return to ensure they are paying the correct amount.

Workers in Luxembourg belong to one of the three tax classes, which determines their tax-free allowance. Some additional deductions are also available to reduce the tax burden. Once your taxable income has been determined, it will be set against Luxembourg’s 23 income tax bands to calculate your tax bill.

In 2026, the first €13,230 you earn is exempt from income tax. The highest rate of 42% is only levied on earnings over €234,871. You must file a tax return on your earnings for 2025 by 31 December 2026.

When paying income taxes in Luxembourg as an expatriate, you may need to transfer money from accounts in your home country. Wise’s multi-currency account allows you to hold and manage money in multiple currencies, making it easier to budget for tax payments throughout the year. 

You can then convert and transfer funds to your Luxembourg account at the mid-market exchange rate when it’s time to pay your taxes, potentially saving on currency conversion costs compared to traditional banking options.

Income tax for self-employed workers

Self-employed workers, including freelancers and sole traders, pay income tax at the same rates as employed people. Like in many countries, self-employed workers can deduct costs incurred for running their business before calculating their taxable income.

Municipal tax

Communes in Luxembourg can set their own municipal tax for companies (more on this in the next section) and property tax for companies and individuals. These communal taxes cover local services such as waste management and water supply.

Luxembourg levies property taxes annually on residential, commercial, or mixed-use property ownership. Rates vary from 0.7% to 1% of the property’s ‘cadastral value’ which depends on its nature and location. The calculations can be complicated so it’s good to contact your local municipal office to find out about the rules in your area.

Corporate tax

Businesses that make more than €200,000 a year in Luxembourg must pay corporate tax at a rate of 16% in 2026.

Companies must also pay an additional solidarity tax (7%) and a municipal business tax (6.75% in Luxembourg City). This means that the effective corporate tax rate for businesses is 23.87% in 2026.

Lower rates are available for companies with lower profits, as follows:

• Annual profit of less than €175,000: 14% corporate tax rate.
• Annual profit of €175,001–200,000: flat charge of €24,500 plus 30% on profits above €175,000.

Companies usually pay corporate tax bills in advance every quarter. Payments are due in March, June, September, and December.

VAT in Luxembourg

Value-added tax (VAT – Taxe sur la Valeur Ajoutée, TVA) is an EU tax payable on business transactions. While it’s theoretically paid by companies, the cost is actually passed on to customers in the form of a price increase.

VAT rates 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., clothing, wine)
• Standard rate: 17% (e.g., alcohol, beer, shoes)

VAT for businesses

Businesses and self-employed traders with an annual turnover of more than €50,000 must register for VAT by law. Once registered, businesses receive a VAT number.

VAT bills are payable either monthly, quarterly, or annually, depending on the company’s turnover. Companies with a turnover of less than €112,000 must file VAT returns annually by 1 March.

Capital gains tax

Whether you’re subject to capital gains tax when you sell a property in Luxembourg depends on a few different factors. For example, you don’t have to pay capital gains tax when selling your main house or primary place of residence.

If you’re selling your home within five years of buying it, the profit will be taxed as part of your income, taxable at the relevant income tax bracket. If the sale takes place more than two years after the purchase, you may be able to pay a reduced rate.

You can claim tax reductions of up to €50,000 every 10 years on a capital gain. For inherited properties, you may benefit from a tax-free allowance of €75,000.

Real estate income

Any income from leasing a residential property to tenants in Luxembourg is subject to standard income tax rates. The maximum marginal tax rate on rental property owned by resident taxpayers is 42%, to which a solidarity surcharge of up to 9% applies, resulting in a maximum effective rate of approximately 45.8%. Tax is levied on net rental income after deducting allowable expenses.

Resident taxpayers who own rental properties in Luxembourg or abroad must report rental income on their tax returns.

Inheritance tax

Inheritance tax in Luxembourg is primarily based on the relationship between the deceased and the beneficiary and generally applies only to Luxembourg-located assets.

Transfers to spouses, registered partners, and direct descendants are exempt from inheritance tax. Other heirs may be subject to inheritance duties at base rates ranging up to 15%, with possible surcharges in specific cases.

Luxembourg does not levy a broad estate tax, and no one pays inheritance tax at rates exceeding 100% of the inherited value.

EU expats can express their wishes in a will to follow the inheritance laws of their home country. Luxembourg’s government provides a guide to calculating taxes on inherited estates.

Gift tax

Gift tax liability depends on the relationship between the donor and donee. Most gifts of cash and movable assets are not subject to gift tax in Luxembourg. Where the tax does apply, rates vary between 1.8% and 14.4%. The government’s guide to gifts and donations provides more information.

Road tax

People who drive a car in Luxembourg must pay an annual road tax. Luxembourg’s Customs and Excise Agency collects road tax in the country. The agency offers an online road tax calculator to work out how much you’ll need to pay.

Tax avoidance and evasion in Luxembourg

Luxembourg’s government aims to crack down on tax avoidance, with fines in force for both accidental and deliberate offenses. Here’s what you can expect depending on the tax offense committed:

• Incomplete or inaccurate returns: between 5% and 25% of the tax due.
• ‘Simple’ tax fraud: between 10% and 50% of the avoided tax.
• ‘Aggravated’ tax fraud: between €25,000 and six times the amount due, plus imprisonment of between one month and three years.
• Tax evasion: between €25,000 and 10 times the taxes evaded, plus prison time of one month to five years.

Luxembourg’s tax fines and penalties

Individual income tax fines for late payment are set at 0.6% of the outstanding payment (in French) per month, calculated from the day following the payment deadline.

Payment extensions or instalment plans may be granted upon request, but interest generally continues to accrue unless exceptionally waived.

Filing an incorrect or incomplete tax return may result in administrative penalties ranging from 5% to 25% of the understated tax, with higher penalties applying in cases of intentional tax fraud.

Companies are subject to similar late payment interest and may incur administrative fines for late filing, while higher penalties and criminal fines apply only in cases of serious or aggravated tax fraud.”

Tax advice in Luxembourg

Taxes in Luxembourg can be a complex matter. The information above provides a general overview, but you should always get professional advice from a financial expert regarding your individual tax situation.

There are also online services that can guide you through income tax filing, such as taxx.lu.

There are also several accountancy trade associations through which you might be able to find a regulated English-speaking accountant. These include the Order of Chartered Accountants.

Useful resources

• Luxembourg Inland Revenue – government agency that manages taxation
• Luxembourg tax offices – find your local representative of the Luxembourg tax agency
• Individual tax return form – file your income taxes online