Taxes in Luxembourg in 2025: changes, laws

Overview of Luxembourg taxes in 2025

Luxembourg's tax system is quite complex, but the Grand Duchy offers taxpayers attractive tax incentives and low, and in some cases even zero, rates. This is a short overview of the main Luxembourg taxes for individuals and businesses, taking into account the latest changes, and we are ready to share it with our readers.

Personal taxes

These are taxes paid by individuals. Everybody, who gets a job in Luxembourg, should be prepared that part of the earned income will go to paying mandatory taxes.

Income tax

In Luxembourg, income tax is payable by anyone who receives any income: salary, investment income, rental income, etc. Calculating income tax can seem very complicated, especially for those who have recently arrived in the country. There is a progressive rate scale, which means that the higher the income, the more tax you will have to pay.

The income tax rate also differs depending on which of the class the taxpayer belongs to. There are three classes: 1, 1a and 2, they directly depend on the marital status of the person:

• Class 1 for single people.
• Class 2 for married people, as well as for civil partners (under certain conditions).
• Class 1a for single people with children, as well as single taxpayers who were 65 on January 1 of the tax year.

In the event of an individual being in gainful employment, the employer will deduct income tax at the appropriate rate from their salary. It is the responsibility of the employee to submit a tax return on an annual basis, by 31 March of the year following the tax year. Income tax is one of the most significant taxes in the state, as it provides the government with the necessary funds to finance public services and maintain its general infrastructure.

Social security contributions

Employees and employers are required to contribute to the social security system. Employers submit information about their employees' wages to the Centre commun de la sécurité sociale – CCSS, and the CCSS calculates the total tax payable. This amount includes the employee's share and the employer's share. Employees' social security contributions are deducted from their wages.

Inheritance, estate, and gift taxes

Inheritance, estate, and gift taxes are also indirect taxes, collected by the Administration de l'Enregistrement et des Domaines. Inheritance tax is levied on all property left by a Luxembourg resident at the time of his death, with the exception of property abroad. If the heir lives and works in the Grand Duchy, he is obliged to pay the tax. The tax rates varying from 0% to 48%, are calculated separately for each beneficiary depending on the share of the inheritance and the degree of kinship with the deceased.

The tax rate on gifts also depends on the degree of kinship between the donor and the receiver and varies from 1.8 to 14.4%. Donations of real estate may be subject to an additional transfer duty of 1%.

The tax base corresponds to the unitary value assigned by the property assessment department of the tax authorities, multiplied by the assessment rate of 0.7 to 1%.

The communal rate is set annually by municipalities, its size varies from 200% to 400%.

Paying any taxes is the responsibility of everyone who wants to live in Luxembourg. Violations are punishable by serious fines.

Corporate taxes in Luxembourg

As Luxembourg is in the center of the EU, many companies have an office there. The activities of companies in Luxembourg are also subject to various taxes. Let's look at the most well-known ones.

Corporate income tax

Corporate tax is a tax levied on the profits earned by companies during the financial year. A company pays corporate tax on its net profit minus any allowable business expenses. For example, in addition to standard expenses such as wages, equipment and office expenses, you can deduct the cost of any gifts or donations, as well as tax losses from previous years.

Resident companies are required to pay corporate tax on all their income, including foreign income. Foreign income may be exempt from tax if:

• the income was earned in a country with which Luxembourg has a double taxation agreement;
• the company has a permanent establishment in that country.

The tax rate is affected by the company's income.

Compared to neighboring European countries, the corporate income tax rate in Luxembourg is quite low. For comparison, here is another table.

The corporate income tax rate is directly affected by two other taxes: the solidarity surtax at 7% and the municipal business tax, which varies depending on the municipality. For example, in Luxembourg City the rate is 6.75%. Starting from the 2025 tax year, the effective combined CIT rate (i.e. CIT, solidarity surtax, and municipal business tax) for Luxembourg City is 23.87%.

Net wealth tax

This is one of the major taxes in the Grand Duchy, which annually brings in significant sums to the country's budget. In Luxembourg, it is paid on the total value of assets belonging to so-called "opaque corporate entities", that is, companies that were deliberately created in such a way that their activities, property and transactions are difficult to determine.

VAT and indirect taxes

Any company that conducts business in the Grand Duchy is required to pay Value Added Tax (VAT). This is the so-called indirect tax, which is levied on the additional cost of a service or product that arises during its production or sale. The basic VAT rate in Luxembourg is set at 17%.

All individuals or legal entities that are engaged in economic activity are required to pay VAT. The tax is paid regardless of the results of this activity. Those individuals who purchase goods or services for personal use not related to entrepreneurship are not VAT payers. In most cases, these are private individuals.

In addition to the base tax rate, Luxembourg applies three types of reduced rates to certain products.

Although VAT is mandatory, there are some exceptions that allow you to avoid paying it. For example, small companies with a turnover of up to 50,000 euros can opt for a national VAT exemption regime. The regime exempts from paying VAT on the domestic market, but excludes the refund of the amount of tax paid by the company on the purchase. In addition, companies operating in the agricultural and forestry sectors also pay tax at a special flat rate.

Real estate taxes

Each commune set independently the real estate tax rates. Luxembourg’s real estate tax rates may differ from commune to commune. Taxable property in the Grand Duchy is divided into two categories: A and B, most types of real estate fall into category B and includes 6 classes of property:

• commercial buildings;
• mixed-use buildings;
• other-use buildings;
• residential buildings and apartment buildings;
• undeveloped real estate, with the exception of residential land;
• residential land.

The property tax is calculated based on the cadastral income from the property and the tax rate applied in a particular commune. The rates can be found on the websites of the communes.

Withholding taxes

Withholding tax is a tax that is withheld at the source of income, from wages of independent contractors, royalties, dividends, or interest, before the recipient receives the income. In Luxembourg, unlike other European countries, withholding taxes are only withheld from dividends and interest. In addition, the tax rate here is one of the lowest in Europe.

Non-residents are required to pay tax at the full rate only if there is no double taxation agreement between their country of residence and Luxembourg. If such an agreement is concluded, a reduced rate of 5% to 15% applies depending on the country of residence of the payer.

In this article we have tried to briefly present information about the most basic taxes in Luxembourg. But to fully understand the tax system, you need to read more information about it. Another option is to use the services of professional consultants who will be able to help you.