Expatriate tax - Luxembourg

Luxembourg taxes its residents on their worldwide income. Non-residents are normally taxed only on the Luxemburgish income but they can ask to be taxed as residents in order to have better tax rates or other deductions possibilities. The taxation system can be changed during the year latest with filing the annual tax return.

There are no pre-arrival procedures to respect besides controlling if a work permit is necessary.

The tax year runs from 1 January to 31 December.

An individual who is a resident of Luxembourg or has taxable income in Luxembourg during the tax year files a form 100.

Tax return filling is not always an obligation. If the income does not exceed certain limits, the withholding tax on the salary can be regarded as final taxation. An annual tax adjustment may be filled.

Individual income tax returns are due on 31 December N+1. 

There are 3 categories of filing status (= tax classes) that may apply to a taxpayer:

• Tax class 1: single or married filing separately
• Tax class 1a: single parent, taxpayers older than 64 years
• Tax class 2: married filing jointly 

Married filing jointly often provides the lowest tax; however, results may differ depending on income levels of the spouses.

Income tax calculation (for residents only)

Assume a married individual with two children (both under 17 years old) and all family members considered tax residents for the entire tax year.

                                                                                                                €
Base salary                                                                                       350.000
Interest and dividend income                                                         1.200
Long term capital gain                                                                    7.500
Total income                                                                                     358.700
Standard deduction                                                                       -193.464
Taxable income                                                                                165.236
Income tax                                                                                        42.754
Marginal tax rate                                                                              25,87% 
Social Security contribution calculation 
Income                                                                                               350.000
Pension (8 %) (maximum base 158.267,52)                                  12.661
Illness (0.25 % + 2.8%) (maximum base 158.267,52)                   4.827
Long time illness (1,4%)                                                                    4.789
Total social taxes                                                                               22.277

Residents and non-resident taxpayers are taxed under the same rules and subject to tax at graduated rates. Residents are taxed on worldwide income; non-residents can ask to be taxed as residents.

If non-resident taxpayers apply to be taxed as tax residents, they will be taxed on their worldwide income.

The taxpayer is seen resident from the first day of moving to Luxembourg or if his vital interest (family, fortune…) are based in Luxembourg. The residence ends with the deregistration in Luxembourg and move from Luxembourg.

Generally, all earnings deriving from an activity, occasional or regular, are taxed as income from employment provided that the income is not considered business income or income from capital. All earnings from an employer to an employee are reportable and taxable as income from employment, i.e. wages, fees, sickness allowances, severance pay as well as benefits in kind i.e. free meals, a company car, interest subsidies, travel benefits and expense allowances, e.g. subsistence allowances and travel compensation.

The taxation of an individual on stock option income depends on what kind of option has been granted, (i.e. incentive stock options or non-qualified options). This similarly applies to other equity-based compensation. A stock option is the right granted to an employee in consideration for the performance of services, to purchase shares in a corporate employer or related company.

The option agreement usually specifies the purchase price and time period during which the option may be exercised. Income from the exercise of traditional stock option plans is generally taxed at ordinary tax rates and is subject to withholding upon exercise. The tax treatment of stock options and other equity-based compensation is a complicated area and advice should be sought, particularly if options are earned in multiple countries and the vesting period relates to duties performed.

The source of employment is generally determined by the place where services are performed.

Since January 1, 2025, a new simplified regime is available for expatriate employees. The conditions remain unchanged, except for the condition that initially required the inpatriate’ s activity in Luxembourg to represent 100% of his or her business, which is now only 75%. The exemptions are now applied with a flat-rate system: 50% of the employee's total gross annual remuneration before the inclusion of benefits in kind and cash benefits  is exempted, up to a gross annual remuneration eligible for the tax exemption of €400,000.

Depending on the length and terms of the assignment, tax relief may be available under the provisions of a bilateral tax treaty between Luxembourg and the home country.

The inpatriate can benefit from the regime for up to eight years following the year of arrival, provided that the conditions are met.

Luxembourg has an extensive income tax treaty network with 100 countries.

Luxembourg applies either tax credits or exemptions methods to avoid double taxation.

As a Luxembourg resident, a number of deductions may be taken against gross income to arrive at an individual’s taxable income. Unlike non-resident taxpayers, who have limited deductions, a Luxembourg resident has the option of claiming more deductions.

Some examples for deductions are income related expenses, special expenses and allowances, exceptional expenses. 

Capital gains from the sale of investment assets held for less than 6 months are generally taxed at the taxpayer’s ordinary income tax rates. Long term capital gains (sale of investment assets) are only taxable if it is a major participation and are taxable with half of the personal global tax rate. 

Tax exempted if occupied as main residence of the owner since the beginning or at least 5 years before the sale.

Inheritance and gift taxes differ from the rules for income taxes. This should be seen with a notary in Luxembourg. 

Generally, investment income such as dividends, interest where the RELIBI taxes do not apply and royalties received by a resident of Luxembourg is taxed as income. The taxation of rental income depends on where the real estate lays.

Non applicable for Luxembourg.

Real estate (property) taxes are generally assessed at the local level and are paid on property. 

As a general rule, all professional income earned in Luxembourg is subject to social security contribution to be paid to the Centre Commun du Sécurité Social (CCSS).

Certain non-resident taxpayers, however, may pay their social security in their home country due to European legislation.

CCSS requires matching contributions from the employer and the employee for both illness and old age  social security.

The rates are as follows:

• Illness - 5,6 % + 0.5 %
• Old age/pension - 16 %

Those contributions are imposed up to a wage cap that is adjusted for inflation regularly and is € 158.267,52 for the year ( € 13.188,96 for the month ) since January 2025.

The long time illness rate for employees only is 1.4 % and is not capped.
Accident insurance according to the level of risk as well as continued salary payment insurance according to the level of absences is to be paid by the employer only.

There is no wealth tax for individuals in Luxembourg.

Non applicable for Luxembourg.

In Luxembourg only income on worldwide assets has to be declared. Based on the data exchange between the foreign and local authorities the tax office could request further information.

Primary planning opportunities exist around duration of stay in Luxembourg depending on the plans and family situation.

With proper planning, potential costly and unforeseen tax burdens can be mitigated. Planning is also available for individuals concerning incentive compensation, unrealised gains and other foreign financial assets that may become vested or sold during time spent in Luxembourg.