Income Tax Return Guide

Filling out your tax return can be a complex process, especially if you have just arrived in Luxembourg.

To complete your tax return correctly, it is essential to understand the tax system of the country in which you reside. That is why you will find here the most comprehensive guide possible on the tax return procedure and payment in Luxembourg.

Who has to file an income tax return in Luxembourg?

In Luxembourg, individuals and businesses are liable for several taxes, including income tax. They are therefore required to file an annual tax return.

This return must be filed by December 31 of the year following the year in which the income was received.

General principle of income tax returns in Luxembourg

This income tax return provides the tax authorities with accurate information about your financial situation and the amount of tax you ultimately owe, based on your income from the previous year.

The tax authorities will make adjustments via additional tax payments or tax refunds depending on other sources of tax or tax deductions (particularly insurance).

As a reminder, taxes in Luxembourg are deducted at source from income paid.

For more details on tax rules and to better understand taxation in the Grand Duchy, consult our comprehensive guide on the subject by following this link to the guide to tax rates in Luxembourg, where you will find all the information you need.

Income tax returns for residents of Luxembourg

Residents are individuals who have their tax domicile in Luxembourg, in other words, their primary residence.

What income must be declared when you are a resident of Luxembourg?

People who reside in Luxembourg must declare all of their income to the Luxembourg authorities, regardless of the source of that income, including foreign income.

The Luxembourg tax authorities will calculate a global tax rate based on all of this income, including foreign income. This rate will then be applied to Luxembourg income only.

Double taxation in Luxembourg for Luxembourg residents

In some cases, if a Luxembourg resident receives income in another country, they may be subject to double taxation. A bilateral agreement may also govern the conditions for applying this double taxation.

Under a tax treaty between two countries, the global tax rate will only apply to your Luxembourg income. If you receive income in different countries, check with the tax authorities in the countries concerned.

Taxation of non-residents on Luxembourg income

Non-residents of Luxembourg are taxable on their Luxembourg-sourced income only. If they meet certain criteria, non-residents may choose to be treated as residents for tax purposes, giving them access to all available deductions.

In the vast majority of cases, non-residents are treated as cross-border workers. Like residents, cross-border workers' taxes are deducted at source. At the end of the year, non-resident taxpayers must file an income tax return.

Understanding the Luxembourg tax system

Luxembourg's progressive tax system

Like many countries, Luxembourg applies a progressive tax system to declared income. Tax rates increase with income level, regardless of the source of income. According to the latest progressive tax scale, tax rates range from 0 to 42%.

In Luxembourg, income tax is applied in brackets to the amount of declared income. No tax is levied on income below €11,265. The maximum rate of 42% applies to income brackets of €200,005 per year and above.

The taxes paid by taxpayers are used to pay for various government expenditures in areas such as security, transportation, and health care.

Double taxation agreements

Luxembourg has signed double taxation agreements (DTAs) with many countries around the world.

These agreements prevent individuals and legal entities receiving income from different countries from being taxed twice on the same income. In the case of tax treaties, individuals and companies benefit from tax relief, such as a credit for taxes paid in the other country.

In all cases, we recommend that you consult a tax expert, at least for your first tax returns. Thiswill give you a better understanding of Luxembourg's tax system and the measures that apply to your personal situation.

Income tax returns in Luxembourg

Taxpayers must declare their income annually in a tax return. This income tax return will be used as the basis for calculating tax, based on the amount of income received in the previous year and the associated tax bracket.

Optimize your taxation in Luxembourg with our expert advice.

When should you file your Luxembourg tax return?

Luxembourg uses the calendar year for income tax purposes, i.e., from January 1 to December 31. Failure to meet deadlines may result in penalties or interest charges.

Income for the year must be reported to the tax authorities by December 31 of the following year at the latest. This deadline also applies to local income and wealth tax and business tax.

Income tax returns on paper or online

Generally in February, each taxpayer receives a paper tax return form or an invitation to file their income electronically by mail.

Taxpayers must then declare their income from the previous year to the Direct Tax Administration. Tax returns can be filed:

• on paper using the appropriate form(s) provided by the administration
• online instead of on paper, for greater convenience.

How do you file your taxes online in Luxembourg?

Filing your taxes electronically couldn't be easier. Log on to the guichet.lu website, select your status(resident or non-resident), and then follow the instructions.

Guichet.lu, the Luxembourg government's administrative guide, has also posted a tutorial online that walks you through your tax return step by step. Guichet.lu also offers a very practical explanatory video to help you through the entire process of filing your taxes online.

What must be declared on your Luxembourg tax return?

In their tax return for the previous year, taxpayers must declare all of their income.

All income and expenses declared must be supported by official documents in French, German, or Luxembourgish. The various organizations you are in contact with (employer, various funds, insurance companies, service providers) will send you the necessary tax documents in good time. Do not hesitate to follow up with your service providers if you do not have these documents.

Income to be declared in Luxembourg

There are eight categories of taxable income for individuals:

• salary income
• income from self-employment, including directors' fees
• income from commercial activities
• income from agriculture or forestry
• income from movable investments
• property and rental income
• income from retirement pensions, alimony, etc.
• miscellaneous income.

Expenses to be deducted on your Luxembourg tax return

For each of these categories, taxpayers can deduct certain expenses to arrive at their net income.
Taxpayers also benefit from deductions and tax credits, including:

• employment-related expenses: individuals can deduct certain expenses from their taxable income, such as work-related travel expenses
• childcare costs or alimony paid in the event of divorce
• pension contributions
• charitable donations
• ...

Taxable income is calculated by adding up all these amounts, income and expenses. Tax is calculated in brackets on this taxable income.

Find out more about the tax system and personal income tax.

Payment of income tax in Luxembourg

Taxation in Luxembourg according to tax brackets

In Luxembourg, there are three tax brackets based on different criteria:

• marital status (single, married, divorced, widowed, etc.),
• parental status (dependent children or not),
• resident/non-resident status
• age threshold of 64.

These tax classes are designated 2, 1a, and 1. Class 2 is the most advantageous.

Tax class 2 applies to married couples or couples in a civil partnership. Divorced or widowed persons may also benefit from this class during a transitional period. They will then be taxed in class 1 or 1a. More details are available on the tax administration website.

Depending on your situation, you will belong to one tax class or another. The tax withholding form issued by the administration determines your tax class. The taxclass defines how tax is calculated based on the taxpayer's total income.

Choosing a type of union may or may not improve your tax situation in Luxembourg. Find out more here about the tax implications for couples in a civil partnership, registered partnership, or marriage.

Tax assessment and payment of tax in Luxembourg

Once your taxes have been calculated, the direct tax authorities will send you your tax notice. This will tell you how much you owe the tax authorities or how much you are due to receive in refunds. You will be asked to pay the amounts due as soon as possible.

The amounts due in tax will be debited directly from your bank account.

Overview of the Luxembourg tax system