Tax laws Luxembourg
Luxembourg's taxation system is characterized by a combination of direct and indirect taxes, contributing significantly to government revenues. The primary sources include corporate income tax, local business tax, net wealth tax, personal income tax, and value-added tax.
1. Corporate Income Tax (CIT):
Taxable Income Below €25,000: Taxed at 15%.
Taxable Income Between €25,001 and €30,000: Taxed at €3,750 plus 33% of the amount exceeding €25,000.
Taxable Income Above €30,000: Taxed at 18%.
Solidarity Surtax: An additional 7% is imposed on the corporate income tax. For example, a company with a taxable income exceeding €30,000 faces an aggregate corporate income tax rate of 19.26% (18% + 7% of 18%).
Municipal Business Tax: Levied by municipalities, with Luxembourg City imposing a rate of approximately 6.75%. Combining this with the previous taxes, companies in Luxembourg City with taxable income over €30,000 experience an effective combined corporate income tax rate of about 26.01%.
2. Net Wealth Tax:
Based on the assets held, the net wealth tax is structured as follows:
Assets Below €350,001: Taxed at €500.
Assets Between €350,001 and €2,000,000: Taxed at €1,500.
Assets Between €2,000,001 and €10,000,000: Taxed at €5,000.
Assets Between €10,000,001 and €15,000,000: Taxed at €10,000.
Assets Between €15,000,001 and €20,000,000: Taxed at €15,000.
Assets Between €20,000,001 and €30,000,000: Taxed at €20,000.
Assets Above €30,000,000: Taxed at €30,000.
3. Personal Income Tax:
Luxembourg residents are taxed on their worldwide income, while non-residents are taxed only on Luxembourg-source income. The income tax is divided into eight categories, including trade and business income, self-employment income, employment income, pensions, movable property income, rental income, and miscellaneous income. Taxpayers are classified into three main classes:
Class 1: Single individuals without children.
Class 1a: Individuals aged over 65, individuals with children, and widows/widowers not covered under Class 2.
Class 2: Married couples, individuals in partnership contracts, widows/widowers during the first three years of widowhood, and separated individuals during the first three years of separation (if such a benefit was not accorded in the preceding five years).
Tax rates are progressive, ranging from 0% to 42%, depending on income. A solidarity surcharge of 7% is added to the income tax, increasing to 9% for higher income brackets. Deductions are available for job-related expenses, commuting allowances, insurance premiums, and loan interest. An income-based tax credit for salaried employment of up to €696 applies to incomes of up to €80,000 in Class 1.
4. Social Security Contributions:
Both employers and employees contribute to social security, covering health insurance, old-age pension insurance, long-term care insurance, accident insurance, and the employers’ mutual insurance fund. In 2024, the contribution rates are as follows:
Health Insurance: Employee rate: 3.05%; Employer rate: 3.05%.
Old-Age Pension: Employee rate: 8.00%; Employer rate: 8.00%.
Long-Term Care Insurance: Employee rate: 1.40%; Employer rate: 0.00%.
Accident Insurance: Employer rate: 0.75%.
Occupation Health Insurance: Employer rate: 0.14%.
Employers' Mutual Insurance Fund: Employer rate: 0.72% – 2.84%.
Self-employed individuals face higher contribution rates, ranging from 24.97% to 27.09%, depending on the specific funds.
5. Property Tax:
Property tax in Luxembourg is calculated based on the property's "unitary value," determined by tax authorities. The tax is calculated as:
- Property Tax = Property Unitary Value × Assessment Rate × Communal Rate
The assessment rate generally ranges from 0.7% to 1%. The communal rate, set by local authorities, varies from 120% to 900%, depending on the municipality. For example, property tax for a €500,000 apartment in Luxembourg City amounts to approximately €150.
6. Recent Developments:
Luxembourg is actively working to reclaim its position as Europe's leading fund domicile, a title recently overshadowed by Ireland. In response to Ireland's dominance in the ETF market, Luxembourg has removed a subscription tax and allowed semi-transparent portfolio structures for active ETFs to attract more fund managers. These efforts are part of Luxembourg's broader strategy to maintain its competitiveness in the European fund industry. citeturn0news16
Note: Tax laws and regulations are subject to change. For the most current information, it is advisable to consult official Luxembourg government sources or seek professional tax advice.
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