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Tax Brackets in Luxembourg

Tax Brackets in Luxembourg

In Luxembourg, taxes are levied on the personal income of individuals and corporate ones of companies. This is one of the main reasons that when it comes to paying these levies, one must pay attention not only to the type of income he or she generates, but also on the rates that vary based on several brackets, especially when it comes to natural persons. The same persons can receive income from employment, but also from shareholding ownership in companies.

Below, we invite you to read about the Luxembourg tax brackets and their appliance. If you want to know more about the taxation system in the Grand Duchy, you can always rely on our lawyers in Luxembourg.

Luxembourg tax brackets and types of incomes

Individuals and companies can obtain various types of incomes based on which they will be levied the income tax.

Both in the case of natural persons and companies, the levies depend on whether they are residents or non-residents of Luxembourg, as they will pay the taxes on their entire incomes based on residency.

When it comes to individuals, the following types of income are considered for taxation in Luxembourg:

  • employment;
  • capital gains;
  • real estate rental;
  • investment.

In the case of companies, corporate profits are the main sources of income, but the disposal of shares and various fees can also be imposed. Also, in the case of legal entities used to create investment funds, special tax rules may apply based on various conditions. This is one of the main reasons to choose and work with our Luxembourg lawyers when it comes to tax regulations.

Natural persons and the tax brackets they are taxed under in Luxembourg

When it comes to the Luxembourg tax brackets applied on personal incomes, it should also be noted that these depend on several aspects such as the marital status of the individuals.

There are 3 classes under which natural persons are taxed in Luxembourg:

  • Class 1 which applies to single persons;
  • Class 1a for single persons with children and persons aged 65 at the beginning of a financial year;
  • Class 2 for married persons and for civil partnerships.

There are also a few important aspects to consider when it comes to married non-residents earning income in Luxembourg and who starting with a few years ago fall under the Class 1 tax bracket. However, they can choose to be included in the Class 2 bracket which implies for 90% of their income to be taxed in the Grand Duchy as long as the income of the spouse abroad is not above 13,000 euros.

If you need more information on the tax brackets applies to foreign citizens in Luxembourg or you consider that a residence permit can help you take advantage of the Grand Duchy’s taxation system, you can discuss your options with our specialists.

Tax brackets applicable to individuals and companies in Luxembourg

The Luxembourg tax brackets applicable to corporate income are rather simple, however, when applied to individuals it should be noted that there are 23 progressive taxation levels.

The personal income tax applied on individuals are the following: 

  • incomes of less than EUR 11,266 are imposed with a 0% rate;
  • after the first EUR 11,266 the income tax is levied at a rate of 8%;
  • the highest rate of the personal income tax is 42% and it applies to earnings that surpass EUR 200,000 per month.

Other tax brackets individuals must consider in Luxembourg is that applied to the disposal of assets which range from 0% to 45.78%. However, there are certain conditions to be met, such as for the assets to have a minimum value and to be held for a specific period of time.

When it comes to the Luxembourg tax brackets applies to companies, here are the main aspects to consider:

  • the standard corporate tax rate of 15% applies to companies with a taxable income of less than EUR 175,000;
  • a fixed amount of EUR 26,250 plus a 31% rate applies to companies that have a tax base of EUR 175,000 and EUR 200,000;
  • a corporate tax rate of 17% applies to companies with profits of more than EUR 200,000.

Companies registered in Luxembourg city must also consider a surcharge of 7% and a municipal business tax of 6.75%.

Our law firm in Luxembourg is at your service if you want to open a business in this country.

Filing tax returns in Luxembourg

The tax year is the same as the calendar year in Luxembourg and tax returns must be filed by the 31st of May of the current year for the last one. Financial documents must be submitted with the Luxembourg Tax Service.

If you want to know more about the Luxembourg tax brackets as well as deductions and exemptions available, do not hesitate to contact our lawyers who can provide guidance. You can also rely on us if you want to move or start a business here.