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Understanding tax
Personal finance

Understanding tax

by Sarita Rao 12 min. 05.02.2023
The deadline for filing last year's taxes has been extended to 31 December 2023, but who should file a tax return and what do you need to include?
Figuring out what taxes you should pay in Luxembourg is not the easiest task Photo: Shutterstock
Figuring out what taxes you should pay in Luxembourg is not the easiest task Photo: Shutterstock

You should pay taxes in Luxembourg if your primary residence is in Luxembourg and you have been living here for more than six months. 

The deadline for filing tax returns for 2022 is 31 December 2023, with some exceptions outlined here

You can fill out your personal tax returns online using MyGuichet. This tutorial is designed to help you fill out your tax returns electronically. 

You can still submit a paper tax return (known as form 100F) and if you have filed in previous years, you should receive a letter stating which tax office will be dealing with your return. You can find your local tax office here, and must apply for an extension to the deadline if you need one. 

This article sets out tax classes, tax rates and circumstances for filling in a tax return. It also provides useful links to other websites with more information.

The allowances provided are for the tax year 2022, unless otherwise stated. The information given in this article is correct to the best of our knowledge but is not a substitute for professional advice.

Tax status

In most cases, your tax status will be issued on your tax card, including your classification and any entitlements and adjustments you get (outlined below). You can now receive your tax card electronically. 

Non-residents include cross-border workers or spouses who are non-resident for work purposes. However, in some cases, resident and non-residents must file a tax return. 

To check if you need to file an income tax return, the government provides guidelines here. Usually those in tax class 1 and 1a do not need to fill out an income tax return.

Married couples have the right to choose individual tax status or must file a tax return if maintaining a Tax Class 2 status, as do those those seeking an annual adjustment of tax. 

Tax card and classes

Your tax card should be issued automatically within 30 days of registering at the social security office in Luxembourg.  

You can also apply for one or update your status via the Luxembourg Income Tax Office, known as the Administration des Contributions Directes (ACD).

Your tax card will include your tax rate and deductions for entitlements such as dependent children, although you may need to register using form 164R, particularly if your circumstances change. 

Tax classes

Your income tax will depend on if you are single, married, divorced, widowed, with or without children, and over the age of 64.

Your tax card instructs your employer to withhold a certain level of tax.

Please note that the tax withheld may not be your final tax liability, and additional tax may be due with the tax return – this is often the case for joint filers under Tax Class 2, where both taxpayers are working.

Class 1

All single residents liable for income tax in Luxembourg, now also available as an option for married residents. The withholding rate is 33%.

Class 1A

Single parents, widows and persons over the age of 64. The withholding rate is 21%.

The government announced in the budget for 2023, that it would raise the maximum single parent tax credit (CIM) by €1,005 to €2,505, and the income limit to receive this credit up to €60,000 per year (it had been €35,000). 

Class 2

Married couples, those in civil partnerships (on request), widows and divorcees (if the spouse died or the divorce took place over the previous three years). The withholding rate is 15%. You can find out more about the tax implications when you marry here

You can find full details of tax classifications here and view a tax card sample here

How tax class affects your tax?

There has been calls recently to review tax classes which favour married parents over single parents. In the tax year 2021, a single parent earning €58,000 will pay more than double the amount of tax compared to a married parent on the same income (approximately €12,000 for the single parent versus €5,000 for a married parent). 

The fixed rate can be reduced on demand, by providing a copy of your last month's payslip and asking for your lowest rate to be reviewed. This won't affect your final end-of-year tax bill but can influence the amount of tax deducted at source. 

Tax rates

Income tax is progressive from 0% to 45.78%, and is divided into 23 tax brackets. You can find details of the income tax bands in the Analie Tax & Consulting guide

Tax brackets can broadly be broken down as follows:

Earnings from €11,266 to €20,625 taxed at 8.56-12.84%

Earnings from €20,626 to €45,897 taxed at 12.84-40.66%

Earnings from €45,898 to €100,002 taxed at 41.73%

Earnings from €100,003 to €150,000 taxed at 42.8%

Earnings from €150,001 to €200,004 taxed at 44.69%

Earnings above €200,005 taxed at 45.78%.

Income-tax-deductible expenses (some are deducted on the payroll, some on tax returns):  

  • Mortgage interest deductions (for main residence) of up to €2,000 per member of the household for first six years, €1,500 for next five years and €1,000 for subsequent years.
  • Professional expenses relating to employment. A flat-rate job-related deducation of €540 for employees and €300 for freelancers/self-employed. Travel expenses (depending on your distance to and from work of up to €2,574, and work instruments such as computers or equipment up to  €870 in one year (if the cost is more, then it will be split over more than one year). 
  • An allowance of up to €8,000 for 100% electric cars, €1,500 for hybrid cars, €1,000 for e-bikes and motorcycles/mopeds,  and €600 for bikes if purchased/registered after 1 January 2017
  • Employer contributions to an occupational pension are taxed at a flat rate of 20%, whilst you can deduct up to €3,200 on private pension scheme payments (regardless of age since 2017). 
  • Home-purchase savings contributions (up to €1,344 if aged between 18 and 40)
  • Debit interest and life assurance premiums or interest on a personal loans up to €672 per member of  your household.
  • Investment income of up to €1,500 per person (€3,000 for a married person), and there is a tax exemption on capital gains of €50,000 per person or €100,000 for a married couple
  • Alimony paid to an ex-spouse up to €24,000 per year under certain conditions – you can find out more here.

Extraordinary costs, and costs for children per year

  • Costs for children not living as part of a household, €4,020 (where the taxpayer provides more than 50% of the support for the child)
  • Tax credit for single-parent households of between €750 and €2,505, depending on income (up to €60,000)
  • Domestic cost for housekeeping, cleaners, home help, care assistance and childcare costs of €5,400

An annual adjustment to your taxation can be made if you were a student for some of the financial year, worked only temporarily or are a single parent or receive certain tax relief.

Fines for late payment

You will pay an additional 0.6% for any outstanding payment per month, unless you have applied for an extension. In this case, you will not pay this fee in the first four months after payment is due, after which you will charged 0.1% interest on payments made between 5-12 months and 0.2% for payments made between 1-3 years after the tax deadline. 

Other categories 

Highly skilled 'impatriate' workers

If you have been recruited to work in Luxembourg because your skills were unavailable locally, you may be classified as an 'impatriate' or highly skilled worker with a different tax regime, which will include exemptions for relocation, school fees, rent, utilities and trips home.

You can find out more here.

Normally you must earn a minimum annual gross salary of €100,000. From 1 January 2023, this threshold has been reduced to €75,000.  The tax exemption can only be made available for up to 8 years. 

EU institution workers

The Protocol of Privileges and Immunities of the European Communities applies to staff of the European institutions in Luxembourg.

This means staff pay income tax to the European Union on their salaries and pensions that is withheld at source.

Employees do not pay national income tax.

The tax scale is also progressive and divided into income brackets from 0% to 45%, which is adjusted on a regular basis by the Council of Ministers of the European Union.

Who should file a tax return?

  • If your taxable income exceeds €100,000 
  • If there is a combination of several incomes (wages and pensions) that exceeds €36,000 for taxpayers in Class 1 and 2 or €30,000 in Class 1A. This is also true for non-resident households
  • If you are registered partners with a Class 2 status (filing jointly)
  • If you run your own business or are self-employed
  • If you earn a rental income you do not pay tax on
  • If you have any form of foreign income you do not pay tax on
  • If you get Luxembourg dividends or director's fees of more than €1,500 per year
  • If you are a non-resident partner who has opted for joint taxation

The deadline for filing tax returns in Luxembourg is 31 March (for the previous tax year of January to December). 

You can file these online at MyGuichet or download a form as a resident or non-resident of Luxembourg. You'll find a list of local tax offices if you want to pick up a paper copy and return it by mail here

Calculating your taxes

You can use this government website to calculate your expected income tax here, or you can use the "Just Arrived" tax calculator here.

You can find out about challenging a decision by the Luxembourg Inland Revenue here.

More information

Laura Foulds at Analie Tax & Consulting provides a detailed Luxembourg Tax Guide in English. PwC has also produced a brochure for income tax.

The BCEE bank has a useful article on filling out tax returns here and you can find details of employment and pension tax in Luxembourg here. Guichet has numerous useful articles on what you can claim and how to claim it on its taxation portal here.   

A tax service in English, Taxx.luoffers to help you produce your tax statement for a flat fee of €50. It asks you to answer simple questions adapted to your personal situation and submit supporting documents (which you can do using the photo app on your phone). It will work out the maximum benefits for you and provide you with a ready-to-send tax declaration. 

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