Taxation in Luxembourg

Tax revenue in Luxembourg (officially the Grand Duchy of Luxembourg) was 38.65% of GDP in 2017, which is just above the average OECD in 2017 (34.19% of GDP).

Most important revenue sources for the government

The most important revenue sources for the government are:

Corporate income tax
Local business tax
Net wealth tax
Personal income tax
Value added tax

Taxes are administrated by government agencies. The Minister of Finance levies the taxes through the director of Taxation, the revenue offices, and the tax collection offices.

Corporate Income Tax (CIT)

There are two possibilities: either the company is a resident or non-resident.

Resident companies: Luxembourg considers a company to be resident if its management headquarter is in the Grand Duchy. Luxembourg resident companies have to pay taxes on their worldwide income once foreign taxes (where the company is present and earns an income) are deducted.

Non-resident companies: Luxembourg considers a company to be non-resident if its principle place of management is located outside the country.

The only companies that are tax-free are:

Companies with charitable purposes or which work for the general interest
Private-wealth management companies
Undertakings for collective investment

Taxable Income	Corporate income tax rate
< € 25,000	15%
€ 25,001 - € 30,000	€ 3,750 + 33% of the tax base above € 25,000
> € 30,000	18%

In addition to this, there is a solidarity surtax and a municipality business tax on income.

Solidarity surtax

There is a 7% solidarity surtax amount that is imposed on the corporate income tax. For instance, for companies with a taxable income that exceeds € 30,000, the aggregate corporate income tax rate is 19.26% (18% + 7% × 18%).

Municipal business tax on income

This tax is levied by the municipality and varies within each municipality. For the companies that have their management headquartered in Luxembourg City, the municipal business tax is about 6.75%.

For instance, for the companies that have a taxable income that exceeds € 30,000, the effective combined corporate income tax rate is 26.01% (19.26% + 6.75%).

Other taxes on business

There are additional taxes on business than the corporate income taxes. For example, there is value added tax (VAT), implemented under the framework provided by the VAT Directive (2006/112/EC), with a general rate of 17% (with reduced rates of 14%, 8%, or 3%).

There is also the net wealth tax (IF) which depends on the assets held:

Assets (EUR)	Net wealth tax
< 350,001	€500
350,001 – 2,000,000	€1,500
2,000,001 – 10,000,000	€5,000
10,000,001 – 15,000,000	€10,000
15,000,001 – 20,000,000	€15,000
20,000,001 – 30,000,000	€20,000
> 30,000,000	€30,000

Personal Income Tax

Resident individuals:

Luxembourg considers individuals as tax resident if they have their permanent residence (where they are physically present for an uninterrupted period of more than six months) in Luxembourg. Therefore, owning a residence in Luxembourg is not the only condition for tax residence.

People that are resident in Luxembourg are taxed on their worldwide income as though it were earned in Luxembourg. Non-resident individuals are only taxed on their Luxembourg-source income, while part-year residents are taxed at a percentage equivalent to what they would be taxed at if all of their income is earned in Luxembourg. It is possible for non-residents to elect to be treated as though their income is fully from Luxembourg if at least 90% of all income is derived from Luxembourg sources (50% for Belgian-resident individuals).

Structure of income tax

In Luxembourg, the income tax is divided into eight categories:

Trade and business income
Income from agriculture and forestry
Income from self-employment
Income from employment
Income from pensions and annuities
Income from movable property
Rental income
Miscellaneous income

Taxpayers are classified into three main classes that depends on their personal situation:

Class 1: Single individuals without children
Class 1a: Individuals aged > 65
Class 2: Married couples and for individuals having a partnership contract (joint taxation)

Tax is calculated with a progressive rate table, ranging from 0% to 42% depending on income. A solidarity surcharge of 7% of income tax is added to income tax, which increases to 9% for tax class 1 and tax class 1a earning more than € 150,000 and for tax class 2 taxpayers earning more than € 300,000.

Example for the class 1 taxpayers:

From (€)	To (€)	Tax rate on income in bracket
0	11,265	0%
11,266	13,138	8%
13,139	15,011	9%
15,012	16,884	10%
16,885	18,757	11%
18,758	20,630	12%
20,631	22,503	14%
22,504	24,448	16%
24,449	26,393	18%
26,394	28,338	20%
28,339	30,283	22%
30,284	32,228	24%
32,229	34,173	26%
34,174	36,118	28%
36,119	38,063	30%
38,064	40,008	32%
40,009	41,953	34%
41,954	43,898	36%
43,899	45,843	38%
45,844	99,949	39%
99,950	149,948	40%
149,949	200,003	41%
200,004	-----	42%

Deductions are possible for, for example, job-related expenses, commuting allowances, insurance premiums, and loan interest.

Social Security Contributions

In Luxembourg, social security contributions are payable by employers and employees. They are divided into five types of fund:

Health insurance
Old-age pension insurance
Long-term care insurance
Accident insurance
Employers’ mutual insurance fund

There are different rates that are applicable depending on the type of fund and the employment status.

See an example the rates in 2018:

Type of fund	Employee rate (%)	Employer rate (%)	Self-employed rate (%)
Health insurance	3.05	3.05	6.10
Old-age pension	8.00	8.00	16.00
Long-term care insurance	1.40	0.00	1.40
Accident insurance	0.00	0.90	0.90
Occupation health insurance	0.00	0.11	0.00
Employers' mutual insurance fund	0	0.46 – 2.95	0.46 - 2.95
Total	12.45	12.52 – 15.01	24.86 - 27.35

References

"Taxation". Guichet.lu. Retrieved 2023-04-18.

"Income taxes abroad". Europa.eu. Retrieved 2023-04-18.

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax

"Taxation and Customs Union" (PDF). Europa.eu. Archived from the original (PDF) on 2019-04-26. Retrieved 2023-04-18.

"Ministry of Finance of the Grand Duchy of Luxembourg". Retrieved 2023-04-18.

"The Luxembourg gouvernement". Retrieved 2023-04-18.

"Tax revenue". OECD. Retrieved 2023-04-18.

This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.