Tax guide: personal income tax

Taxation is one of the fundamental aspects of Luxembourg's economic system. Known for its robust economy and favorable tax environment, Luxembourg has developed a tax system that attracts both individuals and businesses.

Here you will find an overview of taxation in Luxembourg and the different types of taxes that apply to individuals, including the main one: income tax.

Personal income tax in Luxembourg

Who is liable for income tax in Luxembourg?

In Luxembourg, individuals are liable for income tax as soon as they receive income, regardless of the category and method of collection.

However, according to the latest income scale, individuals earning less than €12,438 are not liable for tax.

Above this income threshold, all employees and pensioners are liable for income tax, regardless of their resident or non-resident status.

Each year, taxpayers must file an income tax return with the tax authorities if their household has taxable income exceeding €100,000 per year or if theyreceive income from sources other than professional income.

Find out more about personal income tax returns in Luxembourg.

Tax rates: how much is income tax?

The income tax system in Luxembourg is progressive. It is calculated based on the amount of income received and tax deductions.

Income tax rates range from 0 to 42%. The highest tax bracket in Luxembourg is 42%. This tax rate applies to income above €234,870 per year in 2025.

A 7% surcharge for the Employment Fund is applied to taxable income above €150,000 in tax classes 1 and 1a, and 9% for income above €300,000 in tax class 2.

From January 1, 2023, in order to offset inflation, a"conjunctural tax credit" will apply to all residents and cross-border workers. It will be paid directly into monthly salaries and pensions.

You will find a tax calculator on the Ministry of Finance website to estimate your tax based on your income.

Anticipate your income tax in Luxembourg

Do you have a job interview or salary negotiation coming up? Calculate your net income, minus the expected taxes.

Net salary principle

In Luxembourg, your employer deducts income tax directly from your salary.

This means that at the end of the month, you will receive a net salary, after social security contributions and your estimated income tax have been deducted.

What is the difference between gross and net salary? What are the salary levels in Luxembourg?

Taxation and payment of income tax at source

Income tax in Luxembourg is deducted directly at source on the basis of a tax form issued annually by the Administration. This tax form determines your tax class according to your family situation and status.

Employees or pensioners pay their income tax directly at source. This means that your employer pays you a net salary each month , after deducting the amount of income tax.

Your employer calculates your income tax on the basis of a tax deduction form issued individually by the Luxembourg tax authorities. They then deduct the amount of tax from your salary or pension.

Please note that even though salaries are taxed at source, you must still declare all your income once a year to the tax authorities. See below.

Find advice from our experts on how to optimize your tax situation.

Principle of the tax deduction form in Luxembourg

In Luxembourg, each job or pension gives rise to the issuance of a tax card or "tax withholding card."

Updating the tax deduction card

The tax withholding card is systematically issued by the tax authorities, who send it to taxpayers each year. In the event of a change in circumstances, such as a change of job, retirement, marriage, birth of a child, etc., taxpayers receive an update to this tax withholding card.

All tax deduction forms are sent by post to the taxpayer's home address. Upon receipt, you must send it to your employer so that they can calculate your withholding tax.

If you have not received anything, contact your RTS office, depending on your place of residence.

Who needs a tax withholding form?

Anyone in employment must have a tax deduction form. However, a tax deduction form is not normally required in the following cases:

• students working during school holidays, interns,
• partially for any other casual worker.

Are you in your first job in Luxembourg? You will receive your tax card as follows:

• If you are a resident and a resident taxpayer, you will receive your tax card directly without having to take any action. The Direct Taxation Administrationwill issue your tax card once your new employer has registered you with the CCSS. You will receive your tax card within a maximum of 30 working days.
• If you are an employee and a non-resident (cross-border worker), you must request your tax card as soon as you start your job. To do so, you must contact the RTS non-resident office in Luxembourg. In subsequent years, you will automatically receive a form to complete in order to send the following cards.

What should you do with your tax card?

Once you have received your tax card from the administrative services, don't forget to give it to your employer. This tax card allows your employer to identify the tax bracket you fall into. They can then calculate and deduct your tax directly at source.

If you do not have a tax deduction form, your employer will arbitrarily apply the most expensive tax bracket and tax deduction rate. They will only adjust the rate once they have received the form. It is therefore important that your employer has this tax card as soon as possible.

Choosing a type of union with your spouse has tax implications in Luxembourg. Find out what they are here.

Other taxes payable by individuals in Luxembourg

Excise duties on certain products

Excise duties are levied on a number of products. Tobacco, alcohol, fuel, and heating oil are notably taxed at the point of purchase.

The retailer collects these taxes upon delivery of the products subject to excise duties. These are included in the prices displayed and will be paid to the administration by the retailer.

Property tax on buildings in Luxembourg

Owners of built or unbuilt real estate must pay property tax to the relevant municipal authority. It is payable annually to the municipality of residence.
This property tax will be reassessed in 2023. It is now calculated on the basis of the building potential of the land concerned, multiplied by a tax rate set by each municipality.

People who own their own homes benefit from a €2,000 allowance on the base value.

You can find a property tax calculator here.

Value Added Tax (VAT)

VAT is a tax levied on goods and services. The standard VAT rate in Luxembourg is 17%. However, certain goods and services may be subject to different rates, such as the reduced rate of 8% for certain foodstuffs and non-alcoholic beverages. Products considered to be essential benefit from a lower rate depending on the type of product.

It is the end consumer who pays value added tax on the products they consume. The company that collects it then pays it back to the government.
VAT is included in the displayed price or must be added in the case of a price displayed excluding tax (HT).

Wealth tax in Luxembourg

In Luxembourg, there is no wealth tax for individuals. This tax was abolished in 2006.

However, companies are subject to wealth tax. Find out more about corporate taxation in Luxembourg.

To better understand the tax implications before moving to Luxembourg, check out our guide on what you need to know to move to Luxembourg.

Wealth management and tax optimization in Luxembourg

Luxembourg is renowned for its wealth management services. Banks and other family offices offer a wide range of financial services and investment instruments to help you grow your wealth while optimizing your tax situation.

High net worth individuals can thus benefit from wealth planning and structuring solutions.

However, it is important to comply with tax regulations. Both individuals and companies must fulfill their obligations to declare their income in Luxembourg and meet the filing deadlines.

Failure to comply with tax obligations may result in penalties and other legal consequences.

Using tax experts or certified accountants ensures that your investment strategies are compliant and optimizes your tax planning.

Are you new to Luxembourg? Here are some essential pointers on taxation in Luxembourg.