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The essential guide for individuals in Luxembourg Contents 04 9 1 10 Lump sum deduction 34 9 2 Allowances and tax credits 35 9 2 1 Tax credit for wage earner 35 9 2 2 Tax credit for pension earner 35 9 2 3 Tax credit for self employed 35 9 2 4 Tax credit for bearing children 35 9 2 5 Tax credit for single parent 35
The essential guide for individuals in Luxembourg Contents. Foreword 7,1 General Information 8,1 1 Statutory framework 8. 1 2 Tax year 8,1 3 Tax residency 8,1 3 1 Resident taxpayer 8. 1 3 3 Special regime available for non residents 8. 1 3 4 Dual residency situation 9,1 4 Tax filing status 9. 1 4 1 Joint taxation of spouses and children 9,1 4 2 Joint taxation of partners 9. 1 5 Impatriate tax regime 9,1 5 1 Summary of conditions 9. General conditions for all impatriates 10, Additional conditions in case of intra group secondment 10. Additional conditions in case of recruitment 10,Conditions relating to the employer 10. Procedure 10,1 5 2 Benefits of the regime 10,Relocation 10. School fees 10,Lump sum for recurring expenses 10,Rent Utilities 10. Home Leave 10,Tax Equalisation 10,1 6 Type of tax system 11. 2 Taxable income 12,2 1 General comments 12,2 2 Calculation of the taxable income 12. 2 3 Tax rates and tax classes 12, Procedure of obtaining a tax card in Luxembourg 15. The essential guide for individuals in Luxembourg Contents. 2 4 Avoidance of double taxation 15,2 4 1 Presence of double tax treaty 15. Tax exemption 15,Tax credit 15,2 4 2 Absence of double tax treaty 16. 2 5 Tax reform 2017 16,3 Employment income 17,3 1 Definition 17. 3 2 Cash compensation 17,3 3 Benefits in kind 17,3 3 1 General aspects 17. 3 3 2 Employer provided accommodation 18, Employee contractually liable for rent and lease in his name 18. Employer contractually liable for rent and lease in his name 18. 3 3 3 Company car 19, 3 3 4 Preferential loans and interest subsidies 19. Principle 19,Conditional relief 20,3 3 5 Employer s occupational pension schemes 20. Principles 20,Pension s regulation 20,Scheme s member rights 20. Tax treatment 21, 3 3 6 Life insurance and Home saving loan contracts 21. 3 3 7 Stock grants 21,3 3 8 Stock options 21,Transferable options 22. Capital gains treatment 22,3 3 9 Luncheon vouchers 22. 3 3 10 School fees 22,3 3 11 Tax planning for employers 22. Dual employment contracts split payroll 22,Timing of transfer 23. Deferral Advancement of income streams to non resident periods 23. Tax reimbursement methods 23,4 Entrepreneurial income 24. 4 1 Business income 24, The essential guide for individuals in Luxembourg Contents. 4 2 Income from self employment 24,4 3 Income from farming and forestry 24. 4 4 1 Personal tax consequences 25,Resident taxpayers 25. Non resident taxpayers 25,4 4 2 Tax consequences for company 25. 5 Pension and annuities 26,Foreign source pensions 26. Computation of pension income 26,6 Dividends and interest 27. 6 1 Dividends 27,6 2 Interest 27,7 Rents and royalties 29. 7 1 Real estate income 29,7 1 1 Owner occupied property 29. 7 1 2 Other real estate 29,7 2 Royalties 30,8 Capital gains 31. 8 1 Short term speculative gains 31,8 2 Long term gains 31. New Law on long term capital gains realized on immovable property Law of. 3rd May 2016 32,8 3 Principal residence 32,9 Deductions and allowances 33. 9 1 Deductions 33,9 1 1 Standard deductions 33,9 1 2 Social security contributions 33. 9 1 3 Insurance premiums 33,9 1 4 Home saving and loan schemes 33. 9 1 5 Debit interest 34,9 1 6 Mortgage interest 34. 9 1 7 Private old age pension schemes 34,9 1 8 Charitable contributions 34. 9 1 9 Alimonies to divorced spouse 34, The essential guide for individuals in Luxembourg Contents. 9 1 10 Lump sum deduction 34,9 2 Allowances and tax credits 35. 9 2 1 Tax credit for wage earner 35,9 2 2 Tax credit for pension earner 35. 9 2 3 Tax credit for self employed 35,9 2 4 Tax credit for bearing children 35. 9 2 5 Tax credit for single parent 35,9 2 6 Extraprofessional abatement 35. 9 2 7 Childcare costs and housekeeping costs 35, 9 2 8 Alimonies for children outside the household 36. 9 2 9 Extraordinary charges 36,10 Tax administration 37. 10 1 Tax return filing deadlines 37,10 2 Tax advance payments and tax payable 37. 11 Other taxes 38,11 1 Value Added Tax 38,11 2 Municipal Local Tax 38. 11 3 Inheritance Wealth Tax 38,Estate Tax 38,Gift Tax 38. 11 4 Stamp Duty 39,11 5 Miscellaneous Taxes 39,12 Social security contributions 40. 12 1 Wage earners 40,12 1 1 Social security rates 40. 12 1 2 Assessment basis 41,12 1 3 Social security administration 41. Foreign employer 41,12 2 Independents 42,12 2 1 Social security rates 42. 12 2 2 Assessment basis 42,12 2 3 Social security administration 42. 12 3 International aspects 43,13 Social security benefits 44. The essential guide for individuals in Luxembourg Contents. 13 1 Retirement survivors and disability benefits 44. 13 1 1 Retirement benefits 44,Qualifying conditions 44. Retirement age 44,Retirement pension 44,13 1 2 Survivors benefits 44. Qualifying conditions 44,Benefits 45,13 1 3 Disability benefits 45. Qualifying conditions 45,Benefits 45,Work related disability benefits 45. 13 2 Health care benefits 45,13 2 1 Cash sickness benefits 45. Qualifying conditions 45,Benefits 45,13 2 2 Medical benefits 46. Qualifying conditions 46,Benefits 46,Payment of benefits 46. 13 2 3 Maternity benefits 46,Qualifying conditions 46. Benefits 46, 13 3 Labour accidents and occupational diseases 46. Qualifying conditions 46,Benefits 46,13 4 Unemployment benefits 47. Qualifying conditions 47,Benefits 47,13 5 Social benefits 47. 13 5 1 Parental benefits 47,Qualifying conditions 47. Benefits 47,13 5 2 Family allowances 48,The standard family allowance 48. The supplementary allowance 48, The allowance paid at the beginning of the school year 48. The childbirth allowance 48, The essential guide for individuals in Luxembourg Contents. The education allowance 48,13 5 3 Dependent person benefits 48. Qualifying conditions 48,Benefits 49, 13 5 4 Student financial aid Higher educational studies 49. Financial aid available 49,Application for the financial aid 49. 13 6 International aspects 49,14 Cross border workers situation 50. 14 1 Tax consequences 50,14 1 1 Basic principle 50. Taxation on Luxembourg source income in Luxembourg 50. Taxation on worldwide income in state of residence 50. 14 2 Social Security consequences 50, 14 2 1 Social security affiliation of cross border employees working in Luxembourg 50. 14 2 2 Health care benefits 51,14 2 3 Retirement benefits 51. 14 2 4 Family allowances 51,15 Labour environment 52. 15 1 Employees rights and remuneration 52,15 2 Working hours and vacation 52. 15 3 Wages and benefits 52,15 4 Termination of employment 52. 15 5 Labour management relations 53,15 6 Posted workers 54. 16 Immigration 55,16 1 Entrance 55,16 2 Departure 55. 17 Appendix 56,Computation of income tax 56,Theessential. The essentialguide,forindividuals,individualsin,inLuxembourg. Luxembourg Foreword, The purpose of this document is to provide a general overview on the tax. and social security legislation applicable to individuals in Luxembourg as. well as on the labour environment and the immigration regulations It has. been designed purely as a guide and its application in practice will depend. on the circumstances Users of this guide encountering particular problems. are therefore urged to seek appropriate professional advice before relying on. the contents of this guide which is not intended to act in any way as a. substitute for such advice, The essential guide for individuals in Luxembourg 1 General Information. 1 General Information,1 1 Statutory framework, The Income Tax Law Loi concernant l imp t sur le revenu LIR dates. from 4 December 1967 The latest reform came into force on. 1st January 2013 and a new tax reform is confirmed to be. implemented as per 1st January 2017 see section 2 5. The LIR includes individual and corporate income tax the major part. of the provisions applies both to individuals and corporate entities. 1 2 Tax year,The tax year in Luxembourg is the calendar year. 1 3 Tax residency, The extent of the taxation of individual depends on his tax residency. status The Luxembourg residents are obliged to declare their. worldwide income in Luxembourg with available treaty reliefs while. the Luxembourg non residents are taxable on their Luxembourg. source income only,1 3 1 Resident taxpayer, An individual is considered a tax resident in Luxembourg provided that he maintains his domicile or. normal abode there A domicile is deemed to exist if an individual has a permanent home available to. him that he actually uses and intends to maintain A normal place of abode is deemed to exist if an. individual s stay is for more than six consecutive months short periods of absence are not taken into. account Tax residence applies as of the first day of the individual s presence in Luxembourg. 1 3 2 Non resident taxpayer, An individual is considered a non resident in Luxembourg provided he neither maintains his domicile. nor normal abode there,1 3 3 Special regime available for non residents. Apart from salaries and pensions Luxembourg source income derived by non resident taxpayers is. subject to progressive tax rates with a minimum rate of 15 However when progressive rates applied. to the taxable income increased by the tax exempt band show an average rate of less than 15 this. alternative minimum rate applies, Non residents deriving at least 90 of their total income from Luxembourg and Belgian residents. deriving more than 50 of their professional income from Luxembourg are upon request taxed as. if they were residents They are taxed at the rate which would have applied had they been residents. and were subject to tax on their entire Luxembourg and foreign income. This regime can only apply if it provides a favorable result for the non resident It allows non residents. to benefit from deductions for special expenses annuity payments and charges debit interest. insurance premiums donations etc as well as allowances for extraordinary charges The income of. both spouses is taken into account to calculate the rate of tax applicable progression clause The. threshold is calculated considering the income of the spouses separately. The essential guide for individuals in Luxembourg 1 General Information. 1 3 4 Dual residency situation, Provided that an individual is considered to be a tax resident in more than one country based on the. local legislations the relevant double tax treaty concluded between the concerned countries should. be applied The application of the treaty determines in which of the two countries the individual is. resident for tax purposes The treaty also provides the possibility for tax reliefs in order to avoid the. double taxation of income,1 4 Tax filing status,1 4 1 Joint taxation of spouses and children. The taxable unit is the family in Luxembourg The income of a husband and wife and their children. under the age of 18 excluding employment income of children under the age of 18 is aggregated. together for tax purposes Tax rates vary with the family status of the taxpayer Married persons are. assessed jointly in the first year of their marriage even if they were married for only part of the year. Where one spouse is considered a tax resident while the other is considered a non resident they do. not automatically file jointly However they may elect for a joint taxation in Luxembourg if the resident. spouse derives at least 90 of the household s professional income from Luxembourg This provision. grants access to class 2 for the calculation of income tax but may lead to adverse tax consequences. so that a case by case analysis is recommended, As of 2015 joint taxation of married couples of the same sex has been introduced. 1 4 2 Joint taxation of partners, Resident taxpayers who have entered into a common partnership agreement are normally considered. as single taxpayers for tax purposes Nevertheless they are able to elect to be taxed jointly under the. same regime as married taxpayers Non resident partners are also able to elect for a joint taxation in. Luxembourg if they may elect to be taxed under the resident status i e if at least one of the partners. generates 90 or more of his her total income in Luxembourg. The election is done at the end of the tax year through the filing of a tax return. To benefit from a joint taxation the partners must have effectively shared a common residence during. the whole tax year and the partnership agreement must have existed from 1 January to 31 December. of the tax year If these conditions are fulfilled it can be beneficial to request a joint taxation. especially if only one of the two partners has a professional activity. It is worth noting that if the partners are jointly taxed they become joint debtors of the income tax. 1 5 Impatriate tax regime, The Luxembourg tax authorities introduced at the end of 2010 a special tax regime for highly skilled. workers applicable from 1 January 2011, This regime was amended in 2013 through circular LIR n 95 2 of 21 May 2013 and the changes. mainly focus on relaxing the conditions to benefit from the favorable tax treatment On. 27 January 2014 the Luxembourg tax authorities issued a new tax circular LIR n 95 2 which. replaces the previous one and is in force with retroactive effect as at 1 January 2014 This new circular. mainly aims at extending the scope of employees who may benefit from the favourable tax regime. 1 5 1 Summary of conditions, The legislation applies to impatriates i e to employees who are part of an international group and. who are seconded to a Luxembourg company of the group and employees directly recruited abroad. by a Luxembourg company or by a company established in another EEA Member State. The essential guide for individuals in Luxembourg 1 General Information. General conditions for all impatriates, Be tax resident in Luxembourg based on domestic tax law. Not have been Luxembourg tax resident lived at a distance lower than 150 km from the. Luxembourg border subject to Luxembourg income tax on professional income for the 5 years. before arrival, Undertake the local employment as their primary employment and pass on knowledge to local. Meet minimum annual base salary requirements i e EUR 50 000 and must not replace another. non impatriate employee, Additional conditions in case of intra group secondment. Have at least 5 years of seniority in the international group experience in the sector concerned. An employment relationship exists between the sending company and the employee. The secondee must be granted a right to return to the home company. A contractual arrangement exists between the home and host companies with respect to the. secondment,Additional conditions in case of recruitment. Have acquired a deep specialisation in a sector or profession characterised by difficulties of. recruitment in Luxembourg,Conditions relating to the employer. The Luxembourg entity must employ or commit to employ at least 20 full time employees in the. If the entity has been in existence for a10 years or more they can only have a maximum of 30. impatriate employees who benefit from this regime, At the latest by January 31 of each year the employer is required to provide a report of the. employees benefiting from the special regime, In case non resident employers are not required to withhold wage withholding tax on salaries and. do not opt to do it on a voluntary basis the individual is required to file a Luxembourg income tax. 1 5 2 Benefits of the regime, If the conditions described above are met it is possible to obtain a tax relief for certain expenses. which fall under the following categories, Relocation Tax exempt amounts include costs of moving to Luxembourg and similar repatriation. costs at the end of the secondment Costs to make the Luxembourg home suitable to live in. defined in the circular and costs for emergency travel can also be exempt from taxation. School fees A deduction is available for school fees associated with primary and secondary. Lump sum for recurring expenses To cover cost of living allowances and miscellaneous. expenses associated with the expatriation a capped lump sum deduction is available. The following combined costs are also eligible to a tax relief subject to an overall cap. Rent Utilities The tax exempt amount depends on whether a home is maintained in the home. country or not, Home Leave One trip per year per family member can be exempt from taxation. Tax Equalisation Costs associated with the difference in taxes between Luxembourg and the. home country can be exempt from tax, The impatriate can benefit from the regime for up to five calendar years following the year of arrival. provided the conditions continue to be met, The essential guide for individuals in Luxembourg 1 General Information. 1 6 Type of tax system, Individual income is subject to five different levies in Luxembourg. Income tax the main state tax, Municipal business tax a communal tax levied on trading profits only. Social security contributions due on professional income. Employment fund contribution assessed as a surcharge on income tax. Dependence insurance contribution levied on professional income and patrimony income. A description of the taxation of the different types of income is given in the following sections The. individual income tax system is based on the principle of aggregation of income from all categories in. one annual assessment thus securing the full effect of the progressive income tax rates Taxes. withheld at source are generally considered as prepayments of the income tax finally assessed. The graduate tax scale is characterised by comparatively large tax free thresholds and a rapid. progression up to the maximum rate of 40 42 80 43 60 including the 7 9 Employment. Fund contribution, The essential guide for individuals in Luxembourg 2 Taxable income. 2 Taxable income,2 1 General comments, Taxable income can be divided into the following different categories. Entrepreneurial income i e income from trade or business agriculture and forestry self. employment,Income from employment,Income from pensions and annuities. Investment income i e income from dividends and interest. Rental income i e rents and royalties, Miscellaneous income including income from casual services and capital gains on private assets. Receipts from a source not defined in the above categories are not subject to income tax e g gifts. legacies lottery and gambling gains, Various income tax exemptions e g social security benefits legal severance payment certain life. annuities are provided by the LIR,2 2 Calculation of the taxable income. The above categories of income after deduction of related expenses are aggregated in order to. determine the net total income This net income is then reduced by various applicable deductions As. a result the taxable income is determined, Possible losses arising from one category of income are in principle compensated with positive income. from other categories Income falling under the miscellaneous category cannot be simply compensated. with remaining categories but can be compensated internally with some limitations Negative. investment income can be offset under other types of income within certain conditions only. 2 3 Tax rates and tax classes, Progressive tax rates range from 0 to 40 The Employment Fund surcharge increases the income. tax of 7 for income not exceeding EUR 150 000 for single taxpayers and EUR 300 000 for couples. taxed jointly and of 9 for income above these amounts Income tax is levied on the income of a. household i e a husband and wife may not file separately. The essential guide for individuals in Luxembourg 2 Taxable income. The progressive rates of the income tax scale range as at 1st January 2016 as follows. Income bracket Tax Rate Base Tax Rate,0 11 265 0 0. 11 265 13 173 8 8 56,13 173 15 081 10 10 70,15 081 16 989 12 12 84. 16 989 18 897 14 14 98,18 897 20 805 16 17 12,20 805 22 713 18 19 26. 22 713 24 621 20 21 40,24 621 26 529 22 23 54,26 529 28 437 24 25 68. 28 437 30 345 26 27 82,30 345 32 253 28 29 96,32 253 34 161 30 32 10. 34 161 36 069 32 34 24,36 069 37 977 34 36 38,37 977 39 885 36 38 52. 39 885 41 793 38 40 66,41 793 100 000 39 41 73,100 000 150 000 40 42 80. Over 150 000 40 43 60, Including the Employment Fund surcharge the Employment Fund surcharge is not a social. insurance charge merely a current additional tax surcharge Excluding the temporary tax to. balance the state budget, A temporary tax to balance the state budget temporary tax has been introduced from 2015. amounting to 0 5 The tax is due on professional and replacement income e g unemployment. benefits pensions etc as well as on income from capital e g dividend and interest income rental. income etc taxable in Luxembourg of both resident and non resident taxpayers Luxembourg. government recently announced that this temporary tax would be abolished as of 2017 please see. more details on planned 2017 tax reform in the section 2 5. The rate at which income tax is levied depends not only on the application of the progressive rate. scale but also on the marital status age and number of children of the taxpayer. The essential guide for individuals in Luxembourg 2 Taxable income. The classes of taxpayers are shown in the table below. Status of taxpayer Without With Aged more,dependentchi dependent than 64 years. ldren children in,Unmarried 1 1a 1a,Married 2 2 2,Separated or 2 1 2 1a 2 1a. Widowed 2 1a 2 1a 2 1a, Residents and non residents who get divorced during a specific fiscal year get the benefit of tax. class 2 during the next 3 fiscal years provided they did not benefit from the same provision at any. time during a period of 5 years before the considered fiscal year. Residents and non residents who become widowed during a specific fiscal year conserve the. benefit of tax class 2 during the next 3 fiscal years provided they did not benefit from the same. transitory provision during the five preceding years. Non resident taxpayers who are married and living together and who derive more than 50 of the. household s professional income from Luxembourg are taxed in class 2 otherwise class 1a applies. If both spouses derive professional income from Luxembourg the taxation in class 2 implies a joint. taxation of the spouses, The progressive rates of tax are applied to the taxable income of the above classes as follows. Category Application of tax rates,1 Applied to total of net taxable income. 1a Applied to total of net taxable income less an amount calculated as 50 of. the difference between EUR 45 060 and net taxable income when lower than. EUR 45 060, 2 Applied twice on one half of the net taxable income. Annex 1 gives formulae for the computation of income tax in class 1 and in class 2 for the various.