All individuals who receive any income – be it salary, pension, royalties, income from renting an apartment, etc. – pay the income tax.

In Luxembourg the income tax is progressive, i.e. the higher the income, the higher the rate.

To determine the levy rate, first, find the total annual income after deducting all social contributions of around 12%:

• Below 11,265 euros – 0% income tax.
• From 200,004 euros per year and more – 42% income tax.
• From 11,265 and up to 200,004 euros – 8% to 42% income tax on a progressive scale.

The first thing to remember is that the amounts of payments are different for residents and non-residents. The status of tax resident is not automatically assigned when receiving a residence permit.

In Luxembourg, individuals are considered tax residents if they stay in the country for more than 6 months per year and have a domicile.

• Residents pay taxes in Luxembourg from any source of income anywhere in the world, no matter where that source is located.
• Non-residents only pay taxes on the income earned in Luxembourg.

Being in one taxpayer class or another directly affects how much money you will pay to the state.

There are three categories of taxpayers in Luxembourg:

• 1 class — a single person, that is, any person who is not married.
• 1a class  — the intermediate category that includes single parents and people over the age of 65.
• 2 class — the reduced category, that is, spouses or couples with a registered partnership. This class remains in effect for 3 years after a divorce or the death of a spouse.

Another levy under an odd name is an obligatory supplement to income tax. It ranges from 7% to 9% of the tax paid amount:

• 9% for individuals earning more than 150,000 euros in 1 and 1a classes or more than 300,000 euros in 2 tax class;
• 7% for everyone else.

The maximum combined income tax rate, which includes all contribution fees and the solidarity tax, may not exceed the threshold of 45.78%

The fiscal year in Luxembourg runs from January 1 to December 31.

All residents and non-residents must report their taxes. The exceptions are made for 1 and 1a classes, who receive less than 100,000 euros per year from a single source, such as a retirement pension.

The return declarations must be filled out and signed by the competent tax authority by March 31 of the following year after reporting due year. Penalties for late filing stand: 10% of the tax amount for late filing and another 0.6% penalty for each month of delay.

The declaration must be filled out in paper form and sent to the Luxembourg Tax Office (ACD) or submitted online.

To file the declaration online:

• Log in to your account on Guichet.lu.
• Select your tax status – resident or non-resident.
• Follow the on-screen instructions in your next steps.

There are quite a few of them: property tax, investment income tax, transportation tax, property sales tax on movable property and real estate, VAT, an excise tax, welfare contributions, etc.

• All consumers pay VAT for the purchase of goods, it is always included in the final price. In Luxembourg, it is equal to 17%.
• Social contributions are paid by everyone to maintain the health insurance system.
• When selling movable and immovable property, there may be reduced tax regimes.