Posted on 10 May 2022
Married frontier workers: Who is eligible for a fixed tax rate? What are the benefits and drawbacks?
As non-residents of Luxembourg, frontier workers cannot be taxed in tax class 2 like residents. However, they can claim the equivalent of tax class 2, i.e. a fixed tax rate. Who is eligible and on what conditions?
Who is eligible for the fixed tax rate?
All non-resident married couples, provided the conditions for tax assimilation are met.
Couples in a civil union cannot claim tax class 2 directly at source but will be able to benefit from tax class 2 when filing their tax return.
How to obtain a fixed rate?
To do so, you need to submit a request via form 166.
How is the rate determined?
Together with the form 166, you will have to attach your 3 last payslips (for both spouses). The tax authorities will then determine the applicable tax rate according to the income of the spouses and the deductions the couple benefits from.
The aim is that the rate is adjusted as much as possible so that it corresponds to your income.
When is the rate beneficial?
The rate is considered beneficial when the difference in salary between the two spouses is significant.
In the case where one spouse has income in Luxembourg and the other abroad (in Belgium for example), the income from Luxembourg must be higher than the income from Belgium.
Otherwise, opting for the Luxembourg rate would not be beneficial, it would only increase your tax rate! In this case, it is better to stay in tax class 1.
What are the drawbacks?
If you opt for the fixed tax rate, you will have to file your tax return in Luxembourg every year. Indeed, the regulation of the tax will be done based on the tax return. Thus, once the tax return is processed, your tax rate may be adjusted upwards or downwards, depending on the case.
Indeed, the tax rate is based on your income of the previous year. Thus, when your salary increases or decreases during the year, the tax adjustment at the time of the tax return can sometimes be significant.
To avoid this, we invite you to request an adjustment of your tax rate as soon as you are aware of an increase in your salary or a larger bonus.
Example 1
Rose and François are married and reside in France. They are both employed.
Rose works in France and has a taxable income of 18,000 euros per year.
François works in Luxembourg and has a taxable income of EUR 32,000 per year.
In tax class 1, François' average tax rate would be 9.63%.
By requesting tax assimilation, his rate would be 6.42%.
It is therefore beneficial for François to apply for a fixed tax rate. This is because the income from Luxembourg is higher than the income from abroad, which lowers Rose's tax rate.
Example 2
Rita and Philipp are married and reside in Germany.
Rita works in Luxembourg as an employee. She has a taxable income of 40,000 euros per year.
Philipp is self-employed in Germany and has a taxable income of 60,000 euros.
In tax class 1, Rita's average tax rate would be 13.46%.
If she were to claim a fixed rate and thus apply tax class 2, her rate would be 18.21%.
It is therefore not beneficial for Rita to request a fixed tax rate. Since the income from Germany is higher than the income from Luxembourg, it increases Rita's tax rate. It is therefore more beneficial for her to stay in tax class 1.
