At the end of the fiscal year, everyone must report to the state: residents, non-residents, self-employed, entrepreneurs, and contract workers. An exception is made for tax classes 1 and 1a, who receive less than 100,000 euros of income per year from a single source, such as a pension.
Entrepreneurs and salaried employees must both file a number of documents at the end of the tax year. We'll look at the returns that most employees, companies and self-employed people usually submit.
The declaration must be filled out in paper form and sent to the Luxembourg Tax Office (ACD). An alternative option is submitting the tax return in Luxembourg online.
You must file a tax return no later than March 31 of the year following the reporting year. That is, you must file a return for the year 2022 by March 31, 2023.
This is monitored very strictly, and the penalties are impressive: 10% of the amount of tax for late submission and another 0.6% of penalties for each month of delay.
A sole proprietorship, a partnership or a company (SAS, SARL, etc.) must keep accounting records and be registered with the competent tax authorities:
Luxembourg Inland Revenue (ACD);
If required for the activity you have — Customs and Excise Agency (ADA).
Both an entrepreneur and an individual will be required
to file a reliable and complete declaration: any document, including the declaration, must be compliant. This requires accurate and regular financial accounting on the part of the entrepreneur. Luxembourg law provides penalties for tax evasion;
to pay the taxes on time: if the company does not pay the tax debt by the deadline, the competent tax authorities may increase the amount to be paid.
All entrepreneurs must report a number of taxes to the government:
A municipal tax on business;
Property tax (also known as the real estate tax);
Indirect taxes: VAT, customs and excise duties, etc.
Among other taxes on which individuals usually report are personal income tax, capital gains tax, VAT, social contributions, property tax, inheritance and gift taxes, and some others. We described them fully in one of our Guide articles — What taxes are paid in Luxembourg.
Tax rights in the Grand Duchy are subject to the presence/absence of tax residency status:
To be a resident taxpayer, you must reside in the country for at least 6 consecutive months per year;
To be considered a non-resident taxpayer, you must reside in Luxembourg for less than 6 months per year.
Residents must declare their earnings worldwide, non-residents are taxed only for their Luxembourg income.
However, when the income is received in a country with which Luxembourg has an agreement for double taxation, the income is exempt from tax in the Grand Duchy.
The fiscal year in Luxembourg runs from 1 January to 31 December.
Earnings from working as an employee, sole proprietor, or self-employed person are subject to personal income tax. Sole proprietors must report income on their personal income tax return declaration (Form 100F).
Watch the educational video on how to fill out tax returns with the online assistant on MyGuichet.lu.
If your activity is commercial or artisan, the declaration of the establishment of commercial profits and commercial tax (Form 110F) must be attached to the tax return papers.
Both declarations must be filled out and signed by the competent tax authority by March 31 of the year following the reporting one. That is, for the year 2022, you must report your taxes by March 31, 2023.
Both companies and individuals can submit tax returns online or by mail, as long as it is done on time. Failure to file on time is subject to penalties of up to 0.6% of the tax amount.
The amount of personal income tax is determined individually in each case and depends on the taxable income. For example, for income above 200,000 euros, there are 23 different ranges of income tax, ranging from 0% to 42%.
The same rules apply to partnerships where all participants are individuals.
What can be deducted from the taxable income base of a salaried employee
Interest on loans
Both for mortgages and for consumer loans made in Luxembourg or in any other EU country.
However, mortgage interest is only deductible in the case of a loan to your main place of residence. It is deducted for the first 5 years from the annual tax base of a maximum of 2,000 euros, followed by 1,500 euros per year for the next 5 years, and finally 1,000 euros for the following years.
The amounts of insurance and savings premiums
Certain insurance and savings contributions may be deductible under Sections 111 and 111bis of the Income Tax Act. Thus, for example, pension savings contributions can be refunded to the amount of 3,200 euros if several conditions are met:
The minimum contract duration is 10 years.
The contract must expire between the insured person's 60th and 75th birthdays.
There is no option for early repayment of the savings.
Domestic help, child support, financial support for a family member in need, etc., can be deducted from the tax base.
Business travel and training expenses, costs for buying a special uniform, if required, can be deducted at 540 euros per person.
Find more information about the tax return for salaried employees and specifics of filling them out from the experiences of real people in our featured material — What is a tax return and how to deal with it.
Corporate income tax
It is mandatory to pay this type of tax for the following companies:
limited liability companies (SA) with up to 100 partners;
simplified limited companies (SAS);
limited shares partnerships (SECA or SCA) with at least 2 partners: a limited partner and a general partner;
simplified limited liability companies (SARL-S);
European companies with one or more partners (SE);
and some other companies.
Tax rates for companies:
15% if the taxable income does not exceed 175,000 euros;
17% if the taxable income exceeds 200,000 euros.
The declaration and supporting documents
To declare their income, entrepreneurs must file an electronic business income tax return through MyGuichet.lu online assistant. You only have to declare taxable income and submit the data to the Luxembourg Inland Revenue (ACD).
The ACD will check the declaration and accompanying documents and then determine the tax to be paid by the company and will put the deadlines.
Note that all companies that are exempted from the electronic procedure must file a declaration in paper form.
In addition to the declaration, a so-called tax package will be required. To put it simply, it includes supporting accounting documents. The list of documents may vary depending on the activities of the company and the tax regime of the company. But in all cases, the tax declaration must at least include:
Table of Fixed Assets and Amortization;
Total Expenses Statement.
Companies pay corporate tax in advance every quarter — in March, June, September and December, on the dates prescribed by law.
The total amount of these preliminary contributions is fixed according to the latest tax returns — usually for the previous fiscal year. Afterward, it is either automatically adjusted or can be adjusted upon the company's request.
Following the ACD audit, the company receives a fiscal bulletin indicating the tax obligations for the current year. Here, the remaining amount of taxes to pay, including advances already paid, is indicated, as well as the deadline for the payment. The due date is usually one month from the date the bulletin is issued.
Municipal tax on business
The basic tax rate is set by law — 3%.
As for the gross taxable base, it is determined and charged by the Luxembourg Inland Revenue (ACD). The ACD is doing this on behalf of the municipal tax collectors according to a submitted personal income tax return or corporate income tax return.
The municipal rate is determined by each municipality depending on its financial needs and usually ranges from 200% to 400%.
For municipal business tax, the declaration is different for individuals (entrepreneurs) and legal entities.
Legal entities are required to submit an online declaration via the online assistant at MyGuichet.lu.
All those who are not eligible for online submission are required to submit their returns in paper form.
They are made in conventional prepayments according to the following schedule:
You have to pay the rest when you receive the tax bulletin. The municipal government sends it by mail, indicating the amount to be paid and the deadline that must be met.
This tax is always paid regardless of the circumstances. The rate of tax varies from 0.7% to 1%. The amount depends on the type of property you own: it can be a commercial building, building plot, apartment building, etc., and the location of the place
Similar to the municipal business tax, it is up to the Luxembourg Inland Revenue (ACD) to determine the tax base. For this, the value of the property unit is multiplied by the tax rate (0.7% to 1%).
The exact amount to pay and the due date are sent by the municipality by mail through a tax bulletin.
The payment frequency varies depending on the amount of tax involved:
If the tax amount is less than 55 euros, the payment date is November 15 and you must pay the annual amount in full.
If the sum is between 55 and 110 euros, there are two payment dates: May 15 and November 15. Each time half of the total annual amount must be paid.
Finally, if the tax is more than 110 euros, there are four dates to follow: February 15, May 15, August 15 and November 15. On each, a quarter of the annual amount is paid.
Businesses in Luxembourg pay Value Added Tax based on the total company turnover. VAT registration is mandatory for entrepreneurs with an annual turnover of more than 35,000 euros. It is mandatory for companies, partnerships and self-employed too. Those who have a turnover of fewer than 35,000 euros, can register for VAT payments under the reduced regime.
As for the tax rates on VAT, there are four of them in Luxembourg:
The standard 17% tax rate for businesses for the supply of goods and services. However, if the company turnover is less than 35,000 euros per year, a reduced VAT regime applies.
The reduced 14% is charged to businesses that sell certain wines and others.
The reduced 8% applies to the suppliers of electricity, gas, etc.
The ultra-low 3% applies to the services of writers, composers, and performers. It also applies to businesses in the food industry and some others, like pharmaceuticals, radio and television broadcasting, and media in electronic and paper.
The declaration and supporting documents
From January 1, 2020, all VAT returns — monthly, quarterly and annual — must be filed electronically. This can be done by completing an online form or submitting an XML file through the financial data platform (eCDF). Before you file your first declaration on the platform, you need to apply for an eCDF account.
In addition to VAT returns, taxpayers who are registered in Luxembourg and conduct transactions within the EU must submit consolidated reports on goods and services.
Entrepreneurs can see their account status online using the eTVA-C application on MyGuichet.lu
In order to create a declaration, you need:
On the eCDF platform select «Forms / Create».
Find the appropriate type of declaration (monthly, quarterly, annual).
Mark yourself as a declarant in the drop-down list.
Press the «Fill in the form» button.
Input the data in the fields with a blue background, the white fields will be automatically filled in by the system. Mistakes are indicated with red color. Certain fields are mandatory and cannot be left blank. They can be filled with zero, by the way.
After completing the data entry, press the «Submit» button and send the declaration. If the submission was successful, a confirmation message will appear.
You can download a PDF version of the declaration by clicking on the «Download PDF» button.
Detailed instructions on handling the declaration can be found at MyGuichet.lu.
Depending on the annual turnover, individuals/companies that are subject to VAT must declare and pay VAT on a monthly, quarterly and/or annual basis.
The frequency of VAT payments (and filing of declarations) depends on the total annual turnover without tax amount:
If the turnover is less than 112,000 euros, there is one annual VAT return to be filed by March 1 of the following year.
If turnover is between 112,000 and 620,000 euros, four quarterly and one annual VAT returns are filed. The quarterly returns are due by the 15th day of the following quarter. The annual one is to be done by May 1 of the following year.
For a turnover over 620,000 euros, there are 13 declarations — 12 monthly and one annual. The monthly returns are submitted before the 15th day of the month following the due month. An annual - till May 1 of the next year.
You can consult the SCAT for information on VAT. This is the Service of Administrative Cooperation for VAT. Working hours are from 8:30 a.m. to 11:30 a.m. and from 2 p.m. to 5 p.m. on weekdays.
Address: 14, avenue de la Gare, L-1610 Luxembourg. Telephone: (+352) 247-80726.
The accountant's role in tax statements
The government of Luxembourg offers tax consultations in French, English and German. However, this is generally not enough to have a thorough understanding of tax law.
Normally, entrepreneurs are recommended to cooperate with an accountant. Sometimes it can be a requirement of the company's incorporation even.
In Luxembourg there are several professional accounting associations that you can contact:
ALCOMFI — Luxembourg Association of Accounting and Tax Consultants.
ABIAL — Association of British and Irish Accountants in Luxembourg.
IIA Luxembourg — Institute of Internal Auditors Luxembourg.
You can also contact some private accounting firms to help you deal with taxes in Luxembourg.