Income Tax in Luxembourg

The income tax is one of the most important levies in Luxembourg, and it is paid on various sources of earnings. Below, our lawyers in Luxembourg explain the essential provisions of the law on income tax and its rates.

Quick Facts
Applicability	The income tax applies to natural persons obtaining money from various sources.
Activities subject to the income tax in Luxembourg	– employment, – capital gains, – real estate rental, – investment
Applicability of the income tax to self-employed people (YES/NO)	Yes, self-employed people are subject to the income tax in Luxembourg.
Does the income tax apply to foreign citizens living in Luxembourg? (YES/NO)	Yes, foreign citizens generating income in Luxembourg are subject to this tax.
Availability of special application conditions for foreigners (YES/NO)	Yes, special regulations apply to international employees.
Tax base for foreign citizens	Foreign citizens will be taxed on income generated in Luxembourg only.
Condition to be considered a tax resident in Luxembourg	Living in the Grand Duchy for at least 6 consecutive months in a calendar year
Tax rates	The income tax is levied at progressive rates, based on several brackets.
Liability	The income tax applies in accordance with a person’s marital status.
Income tax classes	– Class 1 for single persons, – Class 1A for unmarried people with children and people aged at least 65, – Class 2 for married people/civil partners
Applicability of the income tax on non-residents	Non-resident citizens will be subject to the Class 1 tax category, however, they can also opt for the Class 2 system.
Solidarity tax levy (YES/NO)	Yes
Tax return requirements (if any)	Yes, annual tax returns must be filed by taxpayers.
Availability of double tax treaties (YES/NO)	Yes, natural persons are also covered by Luxembourg’s double tax treaties.
Income tax-related services availability (YES/NO)	Yes, our lawyers in Luxembourg can assist in legal issues related to the income tax.

Who must pay the income tax in Luxembourg?

Any person who generates certain types of income that are subject to taxation in Luxembourg.

NOTE: Companies will also pay the income tax under the form of the corporate levy.

How does the income tax apply in Luxembourg?

On the principle of residency. This means that residents will be taxed differently than non-residents with activities in Luxembourg.

IMPORTANT: The income tax in Luxembourg is applied progressively.

How are Luxembourg residents taxed?

Luxembourg residents are taxed on their worldwide income. However, there are also exceptions from this rule when a double tax treaty applies.

How are non-residents applied the income tax in Luxembourg?

Non-residents will pay the tax on the income they generate in Luxembourg only.

There is also the option for non-residents who make more than 90% of their total income in Luxembourg to choose to be treated as residents from a taxation point of view.

NOTE: There are cases where non-residents can choose to be treated like Luxembourg residents from a taxation point of view. Our tax lawyers in Luxembourg can advise in these situations.

Here is also an infographic on the Luxembourg personal income tax:

What are the conditions to be considered a resident for tax purposes in Luxembourg?

Tax residency is associated with one of the following conditions:

• you have your ordinary/permanent residence in Luxembourg;
• you live in Luxembourg for a longer period of time, namely more than 183 days in a calendar year.

What is the income I have to pay taxes for in Luxembourg?

The following earnings are covered by the Luxembourg income tax:

• salaries and other income derived from employment, including self-employment;
• pensions and other benefits associated with retirement;
• real estate income, such as rentals;
• capital gains, such as the sale of real estate;
• income derived from interests, dividends, investment.

How is the income tax computed in Luxembourg?

The income tax is calculated as follows:

• the establishment of the gross income – all income generated by a person;
• the determination of the tax deductions, such as insurances, savings, childcare, donations;
• the computation of the taxable income base post deductions;
• the levy of the progressive tax scale.

What are the tax brackets applicable to individuals in Luxembourg?

There are three classes under which individuals are levied, and these are:

• the Class 1 for singles;
• the Class 1a for unmarried persons with children and individuals aged at least 65 at the beginning of a tax year;
• the Class 2 for married persons and for those living as civil partners.

What are the rates of the income tax in Luxembourg?

The income tax in Luxembourg is levied on a progressive basis which includes no less than 23 brackets. The following aspects should be considered:

• the income tax brackets range between 0% and 42%, which is the highest rate applied to individuals;
• the lowest income tax of 0% is levied on income of up to 12,438 euros per year;
• the second lowest rate is 8% and is imposed on earnings between EUR 12,439 and EUR 14,508 on an annual basis;
• the top rate applied at 42% is levied from income surpassing EUR 220,789 per year;
• employees must also pay between 7% and 9% as social contributions;
• business profits are taxed at a total rate of 24.94%, which is one of the most advantageous in Europe and EU territory.

Here is our video on the income tax:

What are the income tax compliance requirements in Luxembourg?

In order to pay the income tax in Luxembourg, a person or company is required to file tax returns with the Inland Revenue based on which the assessment will be made. For this, it is important to know that the tax year is the same as the calendar year, starting on the 1st of January and ending on the 31st of December. For this period, the tax return must be filed by the 31st of March.

A resident taxpayer is exempt from filing a tax return with the Inland Revenue if the taxable income is made of one salary which does not exceed 100,000 euros per year after all withholding taxes are applied.

If you have any questions about the Luxembourg income tax and its rates and brackets or need assistance in filing tax returns, do not hesitate to contact our lawyers

If you have any questions about the Luxembourg income tax and its rates and brackets or need assistance in filing tax returns, do not hesitate to contact our lawyers.