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Taxes for Expats in Luxembourg

Taxes for Expats in Luxembourg

Luxembourg is seen as an international destination for companies and foreign citizens coming to work here. Apart from having a great infrastructure, the Grand Duchy is also appealing from an income point of view, when it comes to doing business or working here. When discussing income and profits, taxation is an important aspect to consider.

The taxes in Luxembourg for expats are determined based on residency, however, there are also other things to consider as a foreigner working here. For example, directors of foreign companies who have been transferred here are subject to certain provisions of double tax treaties.

Below, our lawyers in Luxembourg explain how expats are taxed here. You can rely on us for guidance on various tax matters, but also residence aspects.

Luxembourg’s taxation system, one of the most sophisticated in Europe

Before delving into the taxes for expats in Luxembourg, it is worth noting that this country’s personal income taxation system is one of the most complex at European level as the personas income tax is imposed based on the marital status and whether the payer is a resident or non-resident of this country. Then, the same tax is levied based on specific brackets.

So, as a foreign citizen in Luxembourg you need to consider the following:

  • whether you have moved here with your partner;
  • whether you are a resident or not;
  • the income you obtain in Luxembourg.

As a general rule, taxes in Luxembourg for expats are imposed:

  • on the worldwide income if they are Luxembourg residents;
  • on the in income obtained in Luxembourg if they are non-residents.

Our law firm in Luxembourg are at your service if you want to apply for a residence permit. This way, it will be simpler to determine your tax base, but you will also benefit from the tax advantages offered here.

Taxes in Luxembourg for expats based on the tax class

The personal income tax in Luxembourg is imposed on the earnings obtained through work or self-employment. In the first case, the tax will be withheld at source by the employer, meaning one will not need to worry about missing a payment.

The tax classes a natural person can enter are:

  1. single persons, married couples who decided on separate taxation, married non-resident persons;
  2. married persons who decided on joint taxation;
  3. people that reached the age of 65 and single parents who have minor children under their care.

Widowers, divorced and separated persons, as well as civil partners will fall into the category of married taxpayers for the first 3 years of obtaining the statuses.

Should you need assistance in understanding the tax legislation in Luxembourg, you can rely on our local lawyers.

Tax treatment of non-residents in Luxembourg

When moving to Luxembourg, foreign citizens can choose to remain non-residents for taxation purposes, or they can enroll with the Inland Revenue for taxation purposes. There are also certain exceptions for non-residents and Belgian citizens.

The taxes in Luxembourg for expats who are non-residents but make more than 90% of their earnings here or who earn less than 13,000 euros outside the country can choose to be treated as residents. In the case of Belgian citizens making at least 50% of their earnings in Luxembourg can help them qualify for tax residency treatment.

New tax regime for expats in Luxembourg

In 2021, the Luxembourg government amended the old tax system applied to expats thus giving it a more modern approach. According to the reform, expats can enjoy a tax exemption of up to 50% on an income of maximum 30% of the annual basic salary obtained in the Grand Duchy. The minimum yearly salary to qualify for this scheme is 100,000 euros (50% more compared to the previous scheme).

Other requirements to qualify is for the foreign citizen to be a Luxembourg resident, or for cross-border commute workers (this status is often met in the Grand Duchy) the requirement is for them not to live more than 150 km away from the border with Luxembourg. Also, the job must be a skills-based one.

This scheme comes with several advantages when it comes to the taxes in Luxembourg for expats, such as the deduction of relocation fees, rents, utilities, and school fees for children.

When it comes to the tax rates expats must consider in Luxembourg, here are the main highlights:

  • the minimum rate is 0% for an income below 11,265 euros per year;
  • the maximum rate is 42% for an annual income exceeding 200,004 euros;
  • all employees benefit from an annual deduction of 540 euros for employment expenses.

If you need more information on the taxes to pay as an expat in the Grand Duchy, please contact our Luxembourg lawyers.