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 sophisticated tax system that attracts both individuals and businesses.
Here you’ll find an overview of taxation in Luxembourg and the different types of tax that apply to individuals, the main one being income tax.
Personal income tax
Who is liable for income tax?
In Luxembourg, individuals are liable for income tax when they receive income, regardless of the category or method of collection. However, according to the latest income scale, people earning less than 11,265 euros are not liable for tax.
Above this income level, all employees and pensioners are liable for income tax, regardless of whether they are resident or non-resident.
How much is income tax in Luxembourg?
Luxembourg has a progressive income tax system. It is calculated according to the amount of income received. Income tax rates range from 0% to 42%. The highest bracket of 42% applies to income above 200,004 euros.
The Fonds pour l’Emploi rate increase raises the overall effective rate to a maximum of 45.75%, for incomes of €200,005 or more.
From January 1, 2023, in response to inflation, a“business tax credit” will apply to all residents and cross-border workers. It is paid directly from monthly salaries and pensions.
Use our integrated tax calculator to estimate your final tax and net income, based on your gross income and family situation.
Anticipate your income tax
Do you have an upcoming job interview or salary negotiation? Calculate your net income, after deduction of taxes.
In Luxembourg, your employer deducts income tax directly from your salary.
Taxation and payment of income tax
Luxembourg income tax is deducted directly at source on the basis of a tax form issued annually by the tax authorities. This tax form determines your tax class according to your family situation and status.
Employees and pensioners pay their income tax directly at source. This means that your employer pays you a net salary each month , less the amount of income tax due.
Your employer calculates your income tax on the basis of a tax deduction slip, issued individually by the Luxembourg tax authorities. It then deducts the 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.
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, which send it to the taxpayer every 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 looking for your first job in Luxembourg? You will receive the tax card as follows:
- If you are a resident and an employee who is a resident taxpayer, you will receive your tax card directly, without any action on your part. This is because the Direct Tax Administration issues the tax card after your new employer has affiliated you to the CCSS. 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 should I do with my tax deduction slip or tax card?
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.
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.
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.
Companies, on the other hand, are subject to a wealth tax. Find out more about corporate taxation in Luxembourg.
Tax and wealth management
Luxembourg is renowned for its wealth management sector. Banks and other family offices offer a wide range of financial services and investment instruments to help you grow your assets in the most tax-efficient way. Wealthy individuals can benefit from wealth planning and wealth structuring solutions.
Be careful, however, to comply with tax regulations. Both individuals and companies must fulfill their reporting obligations, keep accurate records and meet filing deadlines. Failure to comply with tax obligations may result in penalties and other legal consequences.
Calling on tax experts or chartered accountants can help you ensure compliance with your investment strategies and optimize your tax planning.
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