Renowned for being one of the most dynamic financial centres in Europe, every year Luxembourg attracts thousands of expatriates and newcomers in search of international opportunities and careers.
However, moving to a new country means understanding a tax system that is often different from that of your country of origin. A thorough understanding of Luxembourg taxation will allow you not only to comply with the law, but also to benefit from tax optimisation levers. Scales, administration, declaration, deductions… Let's get to the heart of the matter.
Understanding the Luxembourg tax system
The main things you need to know are your tax class, the authority responsible and how your withholding rate is calculated.
Which authorities deal with taxes in Luxembourg?
The Administration des Contributions Directes (ACD) sets and collects taxes. It has 28 local offices throughout the country.
We recommend that you consult the official taxes website to find the appropriate contact person near you.
How does withholding tax work?
As a tax resident in Luxembourg, your taxes are deducted directly from your gross salary. The amount you receive is therefore net income, from which your contribution has already been deducted.
Your employer calculates this withholding tax on the basis of your tax withholding form and pays it to the tax authorities every month.
This withholding tax is provisional. Sometimes the rate is too high or too low, in which case you will adjust it or pay the difference. This will only be disclosed after your annual tax return has been prepared.
What is your tax class?
There are three tax classes that determine the amount of personal income tax payable:
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Class 1: Single
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Class 1A: Single with children, widowed
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Class 2: Married couples
This classification, based on personal and family circumstances, directly affects the applicable tax scale.
How to complete and submit your tax return
A chore or a money-saving opportunity? Thanks to digital technology, filing your income tax return is not particularly complicated and can yield a number of financial benefits. What do you need to know and how do you need to proceed?
Tax returns are not always compulsory (on the contrary)
As a general rule, annual returns are not compulsory, unless you fall into one of the scenarios described below. However, it would be a shame not to check that all your deductions have been taken into account.
You are required to file a tax return if:
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You are married and your spouse also earns a salary
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Your annual income exceeds €100,000 gross
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You are a cross-border worker in Luxembourg (domiciled in France, Belgium or Germany)
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You receive income in addition to your salary such as rental income in excess of €600 a year or income from financial investments in excess of €1,500 per year.
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You receive several salaries in Luxembourg totalling more than €30,000 gross a year.
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You are self-employed often classed as independent
How do you submit your return?
The simplest and fastest solution is to use the MyGuichet.lu web portal. A virtual assistant will guide you through the form based on your initial information and notify you of every required supporting document to be included with the return.
The paper format still exists and is known as form 100F. You can download it from the official tax website, in the Forms ‣ Natural persons section.
NOTE: to access MyGuichet.lu you need a LuxTrust ID. This system guarantees the security of the platform and the confidentiality of your personal information.
When should you submit your return?
You have until 31 December of the current year to submit your tax return for the previous year. After this date, penalties may apply.
Tips for paying less tax
Between choosing certain investments and identifying deductible expenses, here are a few tips to ensure your tax return is favourable to you.
What tax deductions are available?
Many deductions can be made to reduce your tax base. Here are some common examples:
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Unreimbursed medical expenses
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Education expenses for dependent children
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Childcare costs
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Civil liability insurance (private, car, etc.)
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Supplementary health insurance
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Contributions to supplementary pension plans
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Maintenance payments
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Home savings and interest charges on loans
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Social security contributions
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Interest charges on personal loans
Which investments are the most tax-efficient?
Consider insurance and savings products that can offer tax benefits. Luxembourgers are particularly keen on life insurance and supplementary pension plans, which can save you up to €672 and €3,200 respectively per year.
Here are three examples of tax-efficient products:
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Foyer supplementary pension plan (deductible up to €3,200/year per household member)
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Foyer savings-provident plan (deductible up to €672/year per household member)
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Wüstenrot home savings plan (deductible up to €1,344/year per household member if you are under 40, after which you can deduct up to €672/year)
Each of these investments has the dual benefit of helping you reduce your tax bill while preparing for your financial future.
Your move now
Familiarise yourself with the system, take into account all possible deductions, and consider insurance and savings products that can offer tax benefits.
With this advice and good planning, you can not only optimise your tax return, but also secure your financial situation in Luxembourg.
