Luxembourg Tax Laws
Tax Laws & Regulations
Dealing with tax, payroll, and employment regulations for your staff from overseas is always a tricky process and poses complications that demand expert guidance. Luxembourg is no exception, with layers of taxation applying both at individual and corporate levels.
With over 20 years’ experience in the front rank of international payroll providers, Bradford Jacobs ensures our clients comply with every level of taxation and employment law across the globe. Our ‘knowledge’ is vital for foreign companies expanding into Luxembourg.
By using our PEO service, we will take care of the complicated legwork so that you can focus on your business goals. Bradford Jacobs’ dedicated specialists remove the burdens of worrying about these complications while you focus on building your business in a new territory.
Overview of Taxes in Luxembourg
Luxembourg has a multi-layered system for assessing individual income tax. There are three classes of taxation: Class 1 for single individuals; Class 1a for single persons with children and single individuals at least 65 years of age on January 1 of the tax year; Class 2 for married couples and civil partners (depending on circumstances).
Residents’ Income Tax:
In total there are 23 narrow bands based on percentage of taxable income. They begin at 8% for income above €11,265 (US$12,760) up to €13,173 (US$14,920). The 10th band is 20% on income between €26,457 (US$29,970). The top band of 42% is on taxable income above €200,004 (US$226,535).
Social Insurance Taxes:
Employees’ contributions equate to between 12.20% and 12.45% of the monthly salary. Contributions include 8% towards the pension fund, 2.80%-3.05% towards sickness benefit and 1.40% towards dependents’ insurance. Contributions are partly capped. Employers’ contributions equate to between 12.15% and 15.20% of the employees’ salaries and are fully capped.
Corporate Income Tax (CIT):
Rates of 15% or 17% apply depending on taxable profits. Additionally, a solidarity surtax of 7% and municipal business tax of 6.75% can apply to businesses operating in Luxembourg City.
Withholding Tax (WHT):
Rates on dividends, interest or royalties paid to foreign companies or individuals depend on any applicable tax treaties.
Value Added Tax (VAT):
The standard rate of 17% is the European Union’s lowest. Lower rates apply – 14% on some wines, printed material and some management services; 8% on utilities supply; 3% on some foods, pharmaceutical products, and books, for example.
Net Wealth Tax (NWT):
Resident companies and branches of non-resident companies are liable for NWT at 0.05% on a taxable base up to 500 million euros (565 million US dollars). A taxable base above this attracts a flat tax payment of 2.5 million euros (2.83 million US dollars) plus 0.05% on the excess above 500 million euros. A Minimum Net Wealth Tax payment applies to companies with assets over €350,000 (US$397,057).
Luxembourg Individual Tax – Single, Married
Tax liability depends largely on residency, but both residents and non-residents pay taxes; residents on worldwide income and non-residents on certain categories of income earned in Luxembourg. Individuals are considered residents if they have a permanent home in Luxembourg where they reside for more than six months in a 12-month period and not necessarily a calendar year.
These are selected amounts of taxable income that typically apply, including solidarity tax*
| Single residents’ Income | Class 1 | Class 1a |
|---|---|---|
| €20,000 (US$22,617) | €920 (US$1,040) | 0 |
| €38,700 (US$43,765) | €5,317 (US$6,012) | €4,271 (US$4,830) |
| €58,000 (US$65,590) | €13,080 (US$14,790) | €12,325 (US$13,938) |
| €116,000 (US$131,182) | €37,456 (US$42,358) | €12,325 (US$13,938) |
| €155,000 (US$175,288) | €54,242 (US$61,340) | €53,486 (US$60,486) |
| €205,000 (US$231,830) plus | €76,642 (US$86,672) | €75,885 (US$85,816) |
| Married residents’ Income | Class 2 |
|---|---|
| €20,000 (US$22,617) | 0 |
| €38,700 (US$43,765) | €1,675 (US$1,894) |
| €58,000 (US$65,590) | €5,113 (US$5,782) |
| €116,000 (US$131,182) | €26,614 (US$30,100) |
| €155,000 (US$175,288) | €42,439 (US$47,993) |
| €205,000 (US$231,830) plus | €63,357 (US$71,650) |
Employee Social Insurance Contributions:
Employees’ contributions equate to between 12.20% and 12.45% of the monthly salary. Contributions include 8% towards the pension fund, 2.80%-3.05% towards sickness and 1.40% towards dependents’ insurance. Contributions are partly capped.