Income taxes: who pays and how much?
In Luxembourg, all your income from employment, property, pensions, … is subject to income tax. Your tax rate is calculated according to the amount of your income, your status and your family situation.
How are income taxes calculated? What happens if you are a resident or a non-resident, and if you are a cross-border commuter? Calculate your tax and gross/net income with our built-in calculator.
How is income tax paid in Luxembourg?
Withholding tax by the employer
In Luxembourg, income tax is withheld at source, whether you are an employee or a pensioner. This means that you will receive a net income after deduction of your income tax. Indeed, on the basis of a tax withholding slip (tax card), your employer will be able to calculate the tax due to the tax authorities and therefore deduct this amount from the gross salary negotiated with him/her beforehand. Your employer will therefore pay you your net salary.
Be careful, even if salaries are taxed at source, you must nevertheless declare all your income once a year to the tax authorities. See below.
Tax card or tax deduction sheet
Each job or pension is subject to a tax card or “fiche de retenue d’impôt”. These tax deduction sheets are issued by the Administration des Contributions Directes (ACD) once a year at the beginning of the year or in the event of a change of personal situation (marriage, birth of a child, etc.).
The resident taxpayer employee who occupies for the first time a job in Luxembourg sees his tax deduction form issued without intervention and without his request by the Direct Taxation Administration, after affiliation to the CCSS directly by his employer, in a maximum of 30 working days.
All withholding tax forms must be sent by post to the employee’s home at the beginning of the year, by mid-March at the latest. Didn’t you receive anything? Contact your issuing RTS office depending on your place of residence.
Non-resident employees (frontier workers) working for the first time in Luxembourg must request the tax withholding tax form from the non-resident RTS office in Luxembourg, 5 Rue de Hollerich, as soon as they take up employment. In the following years, they will automatically receive a form to be completed for the following forms to be sent.
Upon receipt by the administrative services, do not forget to communicate the tax card to your employer. This tax withholding tax card allows you to identify the tax class you are subject to.
In the absence of a tax withholding card, the employer will arbitrarily apply the most expensive tax class and tax withholding rate. This rate will be adjusted upon receipt of the slip by the employer. It is therefore important that it be in the employer’s possession as soon as possible.
In principle, the tax deduction sheet is not necessary for pupils or students working during the school holidays, with an hourly wage net of taxes and social contributions of less than 14 euros, people working in a private household as housekeeper, babysitter or care assistant
Three tax classes are defined according to different criteria relating to marital status (single, married, divorced, widowed…), parental status (dependent children or not), resident / non-resident status and the age threshold of 64 years. More details here.
These tax classes are rated 2, 1a and 1, knowing that 2 is the most advantageous class. Then, depending on the amount of income and the associated class, the tax calculation is made on the basis of the tax return to be filled in by each taxpayer.
For non-residents, 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.
Declaration of income and tax return
Whether you are a long-term resident or a newcomer to Luxembourg, the tax return must traditionally be filed by 31 March at the latest in order to declare the income of the previous year to the tax authorities.
The tax return can be filed on paper on the appropriate form(s) sent by the tax authorities. For your convenience, it is also possible to complete your tax return online instead of on paper.
Paper or online tax return
Generally, in the course of February, every Luxembourg taxpayer receives a taxes declaration form by mail to his domicile or an electronic invitation to declare his/her income to the Administration of direct taxes.
To declare your taxes in Luxembourg, you have two possibilities:
- Filling your completed and signed statement, then giving it back to the employee of the competent office of imposition,
- Completing the taxes declaration forms online and sending them to the ACD via MyGuichet.
Know that even if you receive a paper form by mail, you can still complete it online and send it to the ACD via MyGuichet. It is very handy!
How to declare your online taxes?
To declare your taxes online, nothing could be easier: visit the site of guichet.lu, select your status (resident or non-resident), then follow the instructions.
A tutorial was also displayed online by Guichet.lu, the administrative guide of the State of Luxembourg, to accompany you, stage by stage, in your tax return.
Make sure to respect the deadlines as indicated on Guichet.lu: in case of failure to respect the indicated deadlines, a tax supplement, a late-payment interest or a penalty can be applied by the office of imposition.
Status of residents, non-residents and cross-border workers regarding taxes
Residents are people who have their fiscal residence in Luxembourg, in other words, their main home. In some cases, if a resident receives income in another country, he or she may be subject to double taxation. Often, a bilateral treaty governs the conditions for the application of such double taxation. The taxpayer will then have to declare his/her worldwide income at the Luxembourg tax administration, which will calculate a worldwide tax rate and the taxes due.
Non-residents are in the vast majority of cases assimilated to cross-border commuters. The tax is withheld at source, i.e. it is deducted from the salary and paid by the employer to the administration. At the end of the year, a declaration is made by the taxpayer. Corrections can then be made, giving rise to additional payments or retrocessions according to other sources of tax or tax deductions.
In all cases, it is strongly recommended to use the services of a tax expert, at least for the first declarations, in order to have a better understanding of Luxembourg taxation and the measures applicable to your personal situation.