In Luxembourg, an income tax is applied to all salaries, property income, pensions, etc. Deducted at source according to an established scale, it is then subject to a tax return the following year.
Who is liable for the tax? How do you declare your income for taxation? How do you calculate your income tax? How does it apply? What are the differences for residents, non-residents and cross-border workers?
Here you will find all the answers about income tax and tax declaration in Luxembourg.
Who is liable for income tax and how much do I have to pay?
In Luxembourg, all employees and pensioners are liable for income tax, regardless of their resident or non-resident status.
The income tax system in Luxembourg is progressive according to the amount of income received. Income tax rates range from 0% to 42%. Persons with an income of less than 11,265 euros are not liable for the tax. The highest bracket of 42% applies to income above 200,004 euros.
In order to respond to inflation, a“business tax credit” will apply from January 1, 2023 for all residents and cross-border workers. It is paid directly from monthly salaries and pensions.
Use our integrated tax calculator to calculate your final net income and tax liability, based on your gross income and family situation.
Anticipate your taxes
Do you have an upcoming job interview or salary negotiation? Calculate your net income, after deduction of taxes.
In Luxembourg, income tax is deducted directly from your salary.
Taxation and payment of income tax
In Luxembourg, income tax is deducted directly at source. The tax due is calculated by your employer on the basis of a tax form established by the administration. This tax form determines your tax class based on your family situation and status. The calculated tax will be deducted from your salary or pension
Employees or pensioners pay their income tax directly at source. This means that the salary actually paid by your employer is a net salary, minus the amount of your income tax.
Indeed, your employer will calculate your income tax on the basis of a tax deduction form issued individually by the Luxembourg administration.
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.
Principle of the tax withholding sheet
In Luxembourg, a tax card or “fiche de retenue d’impôt” is issued for each job or pension.
This form is systematically drawn up by the tax authorities and sent to the taxpayer each year. In case of a change in his situation, such as a change of job, retirement, marriage, birth of a child, … the taxpayer receives an update of this tax form.
All tax withholding slips are mailed to the taxpayer’s home. Upon receipt, you must send it to your employer to calculate your withholding tax.
Didn’t you receive anything? Contact your local RTS office, depending on where you live.
Who should have a tax withholding slip?
Anyone who is professionally active must have a tax retention slip. However, the withholding tax form is not normally required in the following cases:
- pupils or students working during school vacations, trainees,
- partially for all other casual workers
Tax form and first job in Luxembourg
Are you a first-time job seeker in Luxembourg? You will receive the tax card as follows:
- If you are a resident and a resident taxpayer employee, the tax card is sent directly to you without any intervention on your part. Indeed, the Direct Tax Administration issues the tax card after your affiliation to the CCSS by your new employer. You will receive your tax card within 30 business days.
- If you are an employee and a non-resident (frontier worker), you must request your tax withholding slip as soon as you start working. To do so, you must contact the non-resident RTS office in Luxembourg. The following years, you will automatically receive a form to complete for sending the following forms.
What to do with the tax withholding slip?
As soon as you receive your tax card from the administrative services, don’t forget to give it to your employer. This tax withholding form allows him to identify the tax class to which you belong. It will be able to calculate and deduct your tax directly at source.
If there is no withholding tax form, the employer arbitrarily applies the most onerous tax class and withholding tax rate. He will correct the rate only upon receipt of the form. It is therefore important that your employer be in possession of this tax card as soon as possible.
Taxation according to tax classes
The withholding tax form issued by the administration determines your tax class. The tax class defines how the tax is calculated based on the total amount of the taxpayer’s income.
Three tax classes are defined according to different criteria:
- marital status (single, married, divorced, widowed….),
- parental status (dependent children or not),
- resident / non-resident status
- threshold of age 64.
These tax classes are noted as 2, 1a and 1. Class 2 is the most advantageous class.
Tax class 2 corresponds to married couples or couples in a civil partnership. Divorced or widowed persons can also benefit during the transitional period. More details on the administration’s website.
To learn more about the Tax Card, visit guichet.lu.
What is the difference between gross and net salary? What are the salary levels in Luxembourg?
Income and tax returns in Luxembourg
Taxpayers must report their income annually on a tax return. This will serve as the basis for calculating the tax, depending on the amount of income and the associated tax class.
The income for the year must be declared to the tax authorities by December 31 of the following year.
The tax return can be made :
- in paper form on the appropriate form(s) sent by the administration
- online instead of the paper declaration, for more convenience.
Income tax return on paper or online
Usually in February, each taxpayer receives a paper tax return by mail or an invitation to file electronically.
The declaration is made to the Administration of Direct Taxes.
How to file your taxes online?
For Filing your taxes electronically is easy. Log on to the guichet.lu website, select your status(resident or non-resident) and follow the instructions.
Guichet.lu, the administrative guide of the Luxembourg government, has also put a tutorial online. This document will guide you through your tax return, step by step. Guichet.lu also offers a very concrete explanatory video to help you throughout the process of declaring your taxes online.
Please note that you must respect the deadlines for declaring your income. In case of non-compliance, you may be liable for late payment interest and/or a fine.
What should I declare on my tax return?
In his tax return for the previous year, the taxpayer must declare all his income: salaries, retirement pensions, alimony, income from securities, property income…
The taxpayer also benefits from personal tax deductions and credits, including:
- employment-related expenses: individuals can deduct certain expenses from their taxable income, such as work-related travel expenses
- child care expenses
- pension contributions
- charitable donations
- Tax credits for expatriates : Expatriates who reside in Luxembourg can benefit from tax credits, such as the foreign tax credit.
Resident versus non-resident and cross-border tax return
Income tax return for residents
Residents are people who have their tax domicile in Luxembourg, in other words, their main residence.
In your return, you must declare all your income at the global level. The Luxembourg tax authorities will calculate a worldwide tax rate. This rate will be applied to your Luxembourg income.
In some cases, if a resident receives income in another country, he or she may be subject to double taxation. A bilateral agreement governs the conditions of application of this double taxation. Find out if this applies to you.
Income tax return for non-residents
In the vast majority of cases, non-residents are treated as border residents. Like residents, cross-border commuters have their taxes deducted at source from their wages. At the end of the year, the non-resident taxpayer must file a tax return. Corrections can then be made according to the case:
- additional taxes to be paid or
- tax retrocessions
depending on other sources of taxes or tax deductions (such as insurance).
Double Taxation of Income Conventions
Luxembourg has signed double taxation agreements (DTAs) with many countries around the world.
These treaties ensure that individuals and companies receiving income from different countries are not taxed twice on the same income. Individuals and companies can benefit from tax relief, such as a credit for taxes paid in the other country.
In any case, we recommend that you consult a tax expert, at least for the first few returns. You will then be able to better master the Luxembourg tax system and the measures applicable to your personal situation.
Other taxes owed by individuals
Excise duties are levied on a number of products. Tobacco, alcohol, fuel and heating oil are taxed at the time of purchase.
The merchant collects these taxes upon delivery. They are included in the posted prices and will be returned to the administration by the merchant.
The owner of built or unbuilt property must pay a property tax to the relevant local authority. It is payable each year to the commune of residence.
This property tax is subject to reassessment 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 home benefit from an allowance of 2,000 euros on the base value.
You will find here a simulator of your property tax.
Value Added Tax – VAT
VAT is a tax levied on goods and services. The standard VAT rate in Luxembourg is 17%. However, some goods and services may be subject to different rates, such as the reduced rate of 8% for certain foodstuffs and non-alcoholic beverages. Necessity products benefit from a lower rate depending on the type of product.
It is the final consumer who pays value added tax on the products he consumes. The company that collects it then pays it to the administration.
VAT is included in the price displayed or must be added in the case of a price displayed exclusive of tax (HT).
In Luxembourg, there is no wealth tax for individuals. This tax was repealed in 2006.
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