The Luxembourg taxation system is made up of several taxes that are imposed on tax residents in the Grand Duchy. The term tax residents comprises both natural persons and companies in Luxembourg that are taxed on their worldwide incomes. Foreign individuals and companies carrying out activities that generate an income will be taxed only on the income accrued in Luxembourg. Our tax lawyers in Luxembourg can offer more information on the tax legislation applicable in the Grand Duchy.
Income categories
The following categories of income are taxed in Luxembourg:
- from business activities;
- from agriculture;
- from employment;
- carrying out activities as sole traders;
- pensions;
- rental of property;
- other types of income.
Taxation based on residency in Luxembourg
The Income Tax Act is the main law providing for the taxation of both companies and natural persons in Luxembourg. The law covers not only the taxes that are to be paid in Luxembourg, but also how the tax base is determined.
Taxation in Luxembourg is based on the residence status of the taxpayer. There are two categories of taxpayers in the Grand Duchy:
- Luxembourg resident companies and natural persons;
- non-resident companies and individuals.
While residents are taxed on their worldwide income, non-residents will be taxed only on the income earned in Luxembourg. In the case of foreign citizens and companies, these must also pay attention to the exceptions from taxation which are usually available under Luxembourg’s double taxation agreements.
In the case of companies, tax residency is easier to determine, as in order to be a domestic business, a company must have its legal seat or at least a management place in Luxembourg.
In the case of natural persons, these can either be residents based on specific types of visas which enable them to live, work, and conduct other activities in the Grand Duchy, or by living in this country for a determined period of time during a calendar year (usually 6 months) from the day of moving here.
Our tax lawyers in Luxembourg can offer detailed information on the provisions of the Income Tax Law and its application to both resident and non-resident taxpayers.
The personal income tax in Luxembourg
One of the most important direct taxes applicable in Luxembourg is the personal income tax, which is levied on the revenues of individuals at progressive rates. Luxembourg residents are assessed and taxed progressively based on three classes, which are:
- class 1 applicable to single individuals;
- class 2 for married and civil partners;
- class 1a for pension beneficiaries who must be at least 65 years old, and for single individuals with children.
The tax is levied on a progressive basis, as mentioned above, with the lowest percentage of 8 and a maximum of 42. An additional solidarity surcharge of 7% also applies.
Taxation of non-residents in Luxembourg
Non-residents benefit from a similar tax system applicable to Luxembourg residents. As such, foreign married citizens are taxed under the class 1 taxation system. However, if specific conditions are met, they can benefit from the class 2 taxation system.
To benefit from the class 2 tax system, a non-resident must meet at least one of the following requirements:
- 90% of the entire income of one spouse is subject to taxation in Luxembourg;
- the outside Luxembourg taxable income of one spouse is no more than EUR 13,000 per year.
Special conditions apply to Belgian residents – only 50% of the professional/employment income must be taxable in the Grand Duchy to benefit from the class 2 taxation system.
With respect to the income tax rates, these are progressive, and they range from 8% to 42%. The minimum income taxed is EUR 13,230 per year, which is imposed the 8% rate.
Natural persons must also consider a solidarity tax, which is applied as follows:
- 7% for people earning less than EUR150,000;
- 9% for those making more than EUR150,000 in the class 1 and 1a;
- 9% for those earning EUR 300,000 in the tax class 2.
If you are a foreign citizen and want to relocate to the Grand Duchy and obtain residency, you can rely on our immigration lawyers in Luxembourg for tailored services.
Taxation of companies in Luxembourg
In 2025, the Luxembourg Government lowered the corporate tax rate. The new rates are as follows:
- companies with an annual taxable income below EUR 175,000 will now pay a 14% corporate tax rate;
- companies with a taxable income between EUR 175,000 and EUR 200,001 per year will pay a fixed amount of EUR 24,500 plus 30% on the income above EUR 175,000;
- companies with a yearly taxable income above EUR 200,000 – the corporate tax is now 16% from the former 17%.
This measure also attracted the decrease of the consolidated income tax for businesses registered in Luxembourg City, which now pay the levy at a rate of 23.87% instead of 24.94%. This means that other cities also lowered their municipal tax rates, case in which we recommend relying on our tax Luxembourg lawyers for updated information on the current tax legislation.
Partnerships will not be taxed as companies in Luxembourg, as the partners will be taxed individually, and the personal income tax will apply. The 7% solidarity surcharge also applies to companies in Luxembourg. An additional tax applicable to companies is the municipal business tax, which is set at various rates in every city.
The VAT in Luxembourg
The VAT is the most important indirect levy imposed in Luxembourg, thanks to its contribution to the economy. The value added tax is levied on the sale of goods and services and, in order to collect it, an economic operator must register with the tax authorities first.
It is possible for both natural persons and companies to sell VAT-taxable goods and services in Luxembourg; however, registration for this tax becomes mandatory only after reaching an annual turnover of 50,000 euros.
The VAT is imposed at the following rates:
- the standard rate of 17%, which is levied on the majority of goods and services;
- the lower rate of 14% – on products like beverages, mineral fuels, and oils;
- the reduced rate of 8% – on services related to the supply of natural gas and electricity, art works, repairs, and also on household goods;
- the 3% rate – on food products, clothes, pharmaceutical products, and non-alcoholic beverages.
There is also the 0% rate, which is imposed on intra-community and international transport of goods.
You can rely on our Luxembourg tax lawyers for assistance in incorporating a business and registering it for taxation and VAT purposes in the Grand Duchy.
The minimum net wealth tax in Luxembourg
One of the important taxes imposed in Luxembourg is the wealth levy, which has also suffered modifications in 2025. Specifically, the tax is now computed as follows:
- for a total balance sheet of up to EUR 350,000, the tax to be paid is EUR 535;
- for a balance sheet ranging from EUR 350,000 to EUR 2 million, the tax is EUR 1,605;
- for a balance sheet above EUR 2 million, the minimum net wealth tax is set at EUR 4,815.
Feel free to ask for more information on these changes from our Luxembourg tax lawyers.
Tax rates in Luxembourg
Here are the rates applicable under the Luxembourg taxation system:
- generally, the income tax is levied at rates ranging between 0% (the lowest) and 42% (the highest rate applied to individuals);
- apart from the 0% rate, the lowest one is 8% and it is applied starting with a personal income of 13,230 euros;
- the highest personal income tax rate is 42% and it is applied to income surpassing 234,870 euros;
There are also other important taxes levied in Luxembourg; however, some of them are considered indirect levies, and one of the most important is the value added tax.
Our law firm in Luxembourg is at the service of both individuals and companies seeking to register for taxation in this country. We remind foreign citizens that in order to become Luxembourg tax residents, they need to obtain a certificate of tax residence which will also grant them rights to various benefits. This certificate is issued by the Luxembourg Inland Revenue Service.
Tax minimization strategies in Luxembourg
Tax minimization in Luxembourg is the legal use of the tax system in order to reduce taxes. It can take many forms and it is different from tax evasion, which is the illegal form of escaping payment. Owners of the companies in Luxembourg who want to make sure they do not pay more than they are required can use a set of measures and effective tax planning methods to avoid unnecessary taxation or larger taxation rates. Our tax lawyers in Luxembourg can help you draw up an effective tax plan for minimizing tax liabilities.
A common tax minimization strategy is to bring forward the tax deductions into the current financial year. This can be applied to corporate gifts for clients, employees in Luxembourg or business partners. It can apply to the purchase of necessary office supplies and even the renovation of the office space and/ or the property in Luxembourg used as the companys’ headquarters.
Charitable donations can also be used to lower the amount of taxes due. Deductions apply for different types of donations. The most common type of donation and the easiest to quantify is the donation in cash. However, companies can also make donations in tangible and intangible assets. Our Luxembourg tax lawyers can advise you regarding the different types of donations and the deductible and non-deductible types.
Contributions to retirement plans are also a way to minimize the tax contributions. If possible, taxpayers in Luxembourg can consider maximizing their retirement plan contributions.
Filing tax returns in Luxembourg
Both companies and individuals are required to file tax returns with the local authorities in order to have their income taxes assessed. The tax year is usually the same as the calendar year in Luxembourg; however, companies can decide otherwise. In most cases, the tax year begins on the 1st of January and ends on the 31st of December, with the requirement to file the tax return by the end of March of the following year.
You can also watch our video on taxation in Luxembourg:
Our Luxembourg tax lawyers can also help with EORI and VAT registration in Luxembourg.
Our tax lawyers in Luxembourg can offer more information on the tax obligations companies and individuals must comply with in this country. For full information on the taxation system in the Grand Duchy, please contact our law firm in Luxembourg.