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Taxes

What taxes are paid in Luxembourg

In this article, we will look at the types of taxes paid in Luxembourg and understand the differences between residents and non-residents of the country.

Last time updated
30.09.24

Taxation in Luxembourg is a broad and quite complex topic. We should start with the basic principles and existing types of taxes.

Residents and non-residents

The first thing that should be clear for you — the tax payments are different for residents and non-residents. The tax residency status does not automatically come with obtaining the residence permit.

A person becomes a tax resident by having a tax domicile or a permanent residency. Domicile is a legal term that applies to individuals and determines how permanent residents are taxed.

Nevertheless, even if you have your own housing property in the country, you still can be considered non-resident, if you can prove that your basic life necessities are located outside the Grand Duchy.

The key difference between resident and non-resident is that a resident pays taxes in Luxembourg for any source of income, wherever it is located. And non-residents only pay taxes for their income directly from Luxembourg.

There is also a dual taxation agreement with a number of countries. This agreement works like this: if a person also pays taxes in the country of nationality (citizenship), they can subtract the paid amount from the Luxembourgish taxes.

Taxpayer categories

There are three categories or classes of taxpayers.

Class 1 — a single individual

Being single does not mean that you have no lifepartner. The term implies the absence of marriage.

Class 1a — an intermediate class

That includes single parents and people over the age of 65.

Class 2 — a beneficial category, spouses or couples with a registered partnership

This taxation class will remain with you for 3 years after a divorce or the spouse's death.

Needless to say, there are nuances to this system. For example, if spouses file tax declarations individually, they will fall into Class 1, and if they file a joint tax return, they will fall into Class 2.

Non-residents pay their taxes as Class 1, even if they are married. This rule can be disputed in court, for example, if 90% of the income of one spouse is being taxed.

Your tax category directly affects the amount of money you are supposed to give to the government. To calculate it correctly, a rather complicated system of coefficients and deductions, as well as other factors, like having children, is used.

Main types of taxes

There are quite a few.

Income tax
Solidarity tax
Profit tax
Vehicle tax
Investment income tax
Property tax
VAT
Social contributions
Registration fees

Tax declaration

Both residents and non-residents must submit their tax reports to the state. Exceptions are made for categories 1 and 1a, who receive less than 100,000 per year from a single source, such as a pension. The tax declaration is usually filled out on paper and sent to the Luxembourg Tax Office (ACD).

You must file a declaration no later than March 31 of the year following the reporting year. That is, you must file a tax return for the year 2022, you must do it by March 31, 2023.

This is monitored strictly, and the penalties are severe: 10% of the amount of tax for late filing and another 0.6% of the penalty for each month of delay.

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Authors: Daria
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