Luxembourg is known for its more attractive tax rate compared with that of the border countries. What is the difference if you are a resident, a non-resident or a cross-border worker?

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How am I taxed in Luxembourg ?

Withholding tax

Income tax in Luxembourg is deducted at source whether for employees or pensioners on the basis of a tax deduction card provided by the employee to his employer.

Classes of taxes

Three classes of taxes are defined according to marital status (single, married, divorced, widowed…), parental status (children at charge or not) and the age threshold of 64 years old. More details here.

These classes are designated by numbers 1, 1a, 2 – 2 being the most advantageous class. Depending on the amount of income and the associated class, the tax is calculated on the basis of the tax return to be filed every year by each resident.

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Status of residents, non-residents and border dwellers regarding taxes

Residents are people who have their fiscal residence in Luxembourg, in other words, their main home. In some cases, residents may have to be subject to double taxation. They are strongly advised to approach a tax expert to optimize their taxation.

– Non-residents are generally assimilated to people who cross the border to work. The tax is deducted at source. Meaning that money is taken from the employee’s salary and paid, at the end, by the employer.

At the end of the year, a declaration is made by the taxpayer in march of the folloing year. Corrections can be carried out, giving rise to additional payments or retrocessions depending on other sources of taxes or tax deductions (insurance in particular).

In the case of a household in which one or two spouses are working in Luxembourg, and their income represents more than 50% of the total household income, class 2 is applied. However, the tax reform – starting from 2018 – will shift this situation into class 1.

As a conclusion, “it is clear that if taxation on income is quite explicit, and Luxembourg tax stability is deemed, it is strongly recommended to turn to a tax expert to optimize the payment of taxes. This is generally a very good investment”, said Michel Roumieux, partner at PwC Luxembourg.