Taxes

Tax residency in Luxembourg

In this article we will explain how to obtain a tax residence certificate, how double taxation with other countries works and what are the peculiarities of the Luxembourg tax residency.

Table of content

Actual residency and Luxembourg tax residency are not the same things. Thus, an expat becomes a de-facto resident of the country as soon as he or she receives a residence permit, whereas tax residency has its own specifics.

How to determine your tax residency?

Person

A person (individual, not a company) is considered a Luxembourg tax resident if he or she has a permanent residence in Luxembourg or stays in Luxembourg for more than 183 days in a calendar year.

Company

While for a company Luxembourg is considered a country of tax residence if its registered office or actual management is located in Luxembourg.

OECD has created a brochure in English o sum up the information on Residency for tax purposes in Luxembourg. You can use the brochure from OECD to have memo on criteria for individuals and entities that are taxated. It also includes contact information of the main tax department in Luxembourg.

In order to be obtain a Luxembourg tax residency, an expat must fulfill one of the conditions:

To have a permanent place of residence in Luxembourg

A permanent place of residence is a property, house or apartment that one has acquired and intends to live in permanently or for an undefined, but sufficiently long, period of time.

To have a fixed place of residence in Luxembourg

An expat who has not acquired real estate can still be considered a tax resident if he or she has a place of residence where the individual resides regularly for a significant period of time. For example, a long-term rented house or apartment.

To be physically present in Luxembourg

A person who spends more than 183 days in Luxembourg in a calendar year is considered to be a tax resident, regardless of whether he has a permanent home or habitual residence in Luxembourg.

Guide

Company

Luxembourg

How to register a company in Luxembourg

How to become a tax resident in Luxembourg?

screenshot from Google Maps

In order to become a tax resident, one must:

Register with the Luxembourg tax authorities;
Obtain a taxpayer identification number.

You can do this by filing an application to the Administration of Direct Contributions (ACD), Luxembourg's main tax authority.

The application must include personal information such as name, address, and date of birth, as well as information about income and employment status.

Upon registration, the taxpayer becomes subject to the Luxembourg tax system, which means that he or she will have to submit tax returns and pay taxes on any income received in Luxembourg or abroad, in consideration of any applicable tax agreements or exceptions.

Luxembourg has tax agreements with many countries to prevent double taxation and to ensure that taxpayers are not taxed twice on the same income.

What is a tax residency certificate in Luxembourg?

Luxembourg Tax Residence Certificate is a document that certifies the status of an individual or a company as a Luxembourg tax resident for a specific period of time. The certificate may be necessary in order to confirm the taxpayer's residence in Luxembourg and to avoid double taxation by the foreign tax authorities.

How to obtain a tax residency certificate in Luxembourg?

This involves a special request to the Luxembourg tax authorities. The request must contain the following information:

personal or company details, including name, address, and tax identification number;
duration for which the certificate is requested;
a statement that the applicant appears to be a Luxembourg tax resident;
all other relevant information, such as the purpose of the certificate or the requirements of the foreign tax authority.

You can make the tax certificate request online or by mail: no fee is charged for obtaining this document. Generally, the certificate is issued a few weeks after the Luxembourg tax authorities receive the request. You can contact the Department of natural persons or the Corporate Department.

The certificate includes such information as name, address, taxpayer identification number, and validity period. The document also contains information that the person requesting it is a Luxembourg tax resident and proof of the validity and accuracy of the information provided.

Note that a tax residency certificate does not guarantee that a foreign tax authority will recognize it in order for you to avoid double taxation. Indeed, the foreign tax authority may have special requirements or may ask for additional information or documentation.

We always recommend that you consult with a tax expert for guidance on specific Luxembourg tax regulations and requirements.

Double taxation system in Luxembourg

Luxembourg has signed numerous tax agreements with other countries in order to avoid double taxation. The full list of laws and documents and the current progress of DTC in Luxembourg can be found on the official website of Administration des contributions directes.

The Grand Duchy currently has 86 double tax agreements. You can consult the full list of double taxation agreements for each country of the European Union on the website of the European Commission.

Under these treaties, the income earned in country A by a resident of country B will not be taxed twice. Instead, such income will be taxed in country A, deducting the taxes already paid in country B.

Example

If a resident of Luxembourg receives income from commercial activities in France, the income is taxable in both France and Luxembourg. However, provided that there is a tax treaty between France and Luxembourg, the agreement will determine which country has the primary right to tax the income.

In most cases, the income will be taxed in France and Luxembourg will deduct the taxes paid in France from the amount of taxes to pay here.

Countries with agreements

Tax incentives and deductions

Importantly, double taxation may still occur if there is no DTC or if the agreement does not cover the particular type of income or relevant situation. In those cases, taxpayers may have to rely on domestic tax law or consult with a tax professional to still avoid double taxation.

What Luxembourg tax rules apply to residents?

A well-developed Luxembourg tax system comprises direct and indirect taxes, such as income tax, corporate tax, value-added tax (VAT), wealth tax, etc. The tax system is governed by various laws and regulations, including the Luxembourg Income Tax Law, the Luxembourg VAT Law, and the Luxembourg Tax Code of Procedure.

An individual, being a Luxembourg tax resident, is subjected to Luxembourg's tax rules and regulations. Read more details about what taxes are paid in Luxembourg in the special article. Here are some of the main tax rules that apply to residents.

Individual Income Tax

Residents of Luxembourg are taxed worldwide on their income. Their tax rate varies depending on the amount of income received, from 0% to 43%. However, Luxembourg offers various tax deductions and incentives, for example, for charitable contributions and childcare expenses.

Wealth Tax

Since 2006, net wealth tax has been abolished for individual taxpayers in Luxembourg and is currently only applicable to certain categories of companies, mainly those classified as opaque capital companies.

Value Added Tax (VAT)

Luxembourg has a VAT system that applies to the majority of goods and services. The standard rate is currently 16%, with reduced rates of 3% and 8% for certain goods and services.

Social security contributions

Luxembourgers, whether employed or self-employed, are required to pay social security contributions. The payments serve to fund various social programs, such as health care and pensions.

Tax on inheritance and gifts

In Luxembourg, we have inheritance and gift taxes. The rate of tax varies depending on the relationship between the giver and the beneficiary and on the value of the gift or inheritance.

Since 2021 taxpayers in Luxembourg can use an online platform MyGuichet.lu in order to submit the declaration of the tax return. It is a form 100, as it is called. An electronic assistant can be helpful in such cases. To use the platform, one will need a Luxtrust certificate (in any form) or an eID (electronic identity card).

One important thing to note is, as we mentioned before, that Luxembourg entered tax agreements with many countries in order to avoid double taxation. Such agreements may affect the income tax rules applicable to residents, depending on the particular situation.

Furthermore, Luxembourg tax regulations can also change from year to year. For up-to-date guidance on tax obligations and requirements, you may want to consult a Luxembourg tax expert.

What residents need to know about Luxembourg's tax system?

Luxtoday

Here are some highlights that residents should be aware of about Luxembourg's tax system.

Tax residency

As mentioned above, a Luxembourg tax resident is someone who spends more than 183 days in Luxembourg in a calendar year or has a permanent residency in Luxembourg. Whether it's an owned property or rented estate.

Tax rates

Luxembourg has a progressive income tax system, meaning that the tax rate increases with income. Tax rates currently range from 0% to 43%. Also, the rate is affected by marital status, in some cases by age, and a number of other factors.

Tax return application

Luxembourg residents and non-residents must submit an annual tax declaration by March 31 of the following year. The declaration must include all income received within the tax year, as well as any applicable deductions or incentives. There is a possibility to submit a joint household tax return too.

Tax deductions

Luxembourg provides various tax benefits for residents, such as deductions for charitable contributions, reimbursement of childcare expenses, and mortgage interest payments. In addition, there are exceptions for certain types of income, such as dividends and capital gains from the sale of certain shares. More information on what can be deducted can be found on the official state portal.

Social security contributions

As mentioned earlier, all Luxembourg residents employed and earning an income are required to pay social security contributions.

Double taxation agreements

Luxembourg has signed double tax treaties (also known as tax treaties) with more than 80 countries. Some of the countries with which Luxembourg has signed such agreements are Belgium, France, Germany, the Netherlands, Italy, Spain, Switzerland, the United States, Canada, China, Japan, India, etc.

It is important to mention that Luxembourg is committed to international tax transparency and compliance with international standards, including the OECD project on Base Tax Reduction and Profit Shifting (BEPS) and the Automatic Exchange of Information on Financial Accounts (AEOI) initiative.

Tax rules and regulations can change from year to year, so it is important to be aware of any changes that may affect Luxembourg tax residents' obligations.