Cross-border workers: everything you need to know about tax assimilation in Luxembourg

Cross-border workers in Luxembourg: learn about tax assimilation conditions, available deductions and how to optimise your tax return with taxx.lu.

Working in Luxembourg but living in France, Belgium or Germany? Tax assimilation could save you hundreds or even thousands of euros a year. It lets you be treated as a Luxembourg tax resident and access deductions normally reserved for residents.

Here's everything you need to know about eligibility, how to apply, and what it actually means for your tax bill.

What is tax assimilation?

Set out in Article 157ter of the amended law of 4 December 1967 on income tax (LIR), tax assimilation is a mechanism that allows certain non-resident taxpayers to be taxed as if they were Luxembourg residents. The goal: equal tax treatment between residents and cross-border workers in comparable situations.

Without assimilation, you're taxed only on your Luxembourg income, in tax class 1, with no option to claim deductions (insurance, loan interest, etc.). With assimilation, you get the same deductions as a resident.

Conditions for tax assimilation

To qualify as an assimilated Luxembourg tax resident, you must meet at least one of the following conditions:

1. At least 90% of your worldwide income is taxable in Luxembourg. This threshold is assessed based on your individual situation, not the household's. The first 50 days of teleworking count as days worked in Luxembourg and don't affect your 90% calculation.

2. Your net income not taxable in Luxembourg is below 13,000€. Again, this is assessed per individual spouse or partner. Even if you don't hit 90%, this alternative may make you eligible.

3. Specific condition for Belgian residents: more than 50% of the household's combined professional income must come from Luxembourg. This stems from Article 24 § 4a of the Belgium-Luxembourg double taxation convention.

If you're married or in a civil partnership (PACS), only one person in the couple needs to meet one of these conditions for both of you to apply. For PACS partners, you must prove a shared residence for the entire tax year.

How to request assimilation

The request is made every year through the income tax return (Form 100). On this form, you need to tick the "Assimilation of non-resident to resident" section and declare all your worldwide income.

On taxx.lu, it's even simpler. Our system automatically checks whether you meet the assimilation conditions based on the income you declare. If you do, the corresponding box is ticked for you on Form 100. No need to hunt for the right section or crunch the numbers yourself.

The assimilation request must be renewed every year. It's never automatic. Make sure to keep all supporting documents (payslips, foreign income certificates, insurance certificates, etc.).

What deductions become available?

Once assimilated, you get access to the same deductions as a Luxembourg resident. Here are the main categories:

Special expenses (general cap: 672€ per household member)

• Interest on consumer loans
• Insurance premiums (liability, life, supplementary health, accident), including those taken out abroad, provided you can supply an annual certificate
• Home savings contributions (Luxembourg contract only, up to 1,344€ for ages 18-40, 672€ beyond)
• Donations to approved organisations (minimum 120€/year, maximum 20% of taxable income or 1,000,000€)

Extraordinary charges

• Unreimbursed medical and healthcare costs
• Childcare costs (up to 5,400€ per child per year)
• Costs of supporting a dependent parent
• Disability-related expenses

Mortgage interest

Interest on your mortgage for your main residence is deductible. The caps depend on when the property first became available and are increased for your spouse and each dependent child.

Private pension contributions

Contributions to a private pension plan (Article 111bis LIR) are deductible up to 4,500€ per year per person in the household.

Single-parent tax credit (CIM)

If you're a single parent with one or more dependent children, assimilation allows you to claim the CIM, a tax credit worth up to several hundred euros per year depending on your income.

Is assimilation always worth it?

Not necessarily. Assimilation means your foreign income is factored into your tax rate calculation (even though it's not directly taxed in Luxembourg). If your spouse has high foreign income, the overall rate may increase and eat into the benefit of the deductions.

Compare each year whether filing with or without assimilation gives you a better result.

Joint or individual taxation?

If you're married or in a PACS and assimilated, you can choose between:

• Joint taxation (class 2): your income and your spouse's are added together, then divided by two to set the rate. Best when one partner earns significantly more.
• Pure individual taxation (class 1): each person is taxed separately on their own Luxembourg income.
• Individual taxation with reallocation (class 1): certain income or deductions are redistributed between spouses.

Consequences of non-assimilation

If you don't meet any of the conditions, you'll be taxed in class 1, on your Luxembourg income only. You won't be able to deduct insurance, loan interest, donations or other special expenses. Only your social security contributions will remain deductible.

Practical examples

Example 1: François, French resident

Situation: François lives in France and works in Luxembourg. He also earns 10,000€ net in rental income in France.

Analysis: His foreign income (10,000€) is below the 13,000€ threshold. He can request assimilation.

Benefit: François can deduct his insurance premiums, mortgage interest and private pension contributions, significantly reducing his tax. His French rental income will be declared but exempt in Luxembourg (only the progressivity clause applies).

Example 2: Jade and Marc, German residents

Situation: Jade works in Luxembourg. Marc works in Germany.

Analysis: Jade earns 100% of her income in Luxembourg. She individually meets the 90% condition. The couple can request assimilation and opt for joint taxation in class 2.

Note: Marc's German salary will be factored into the tax rate calculation. If his salary is high, they should compare with individual taxation in class 1.

Example 3: Jeanne, Belgian resident

Situation: Jeanne works in Luxembourg and receives a Belgian pension of 15,000€ per year.

Analysis: Her foreign income (15,000€) exceeds the 13,000€ threshold. If her Luxembourg income doesn't represent 90% of her worldwide income, she can't be assimilated through the first two criteria. However, if more than 50% of her professional income comes from Luxembourg, she can qualify via the Belgian condition.

Conclusion

Tax assimilation is a powerful tool for cross-border workers looking to optimise their Luxembourg tax bill. But it isn't always the best option automatically. It's essential to check your eligibility every year, correctly declare all your worldwide income, and compare the different taxation scenarios.

taxx.lu automatically checks your assimilation eligibility, ticks the right box on Form 100 for you, and compares taxation options to find the most favourable one. Start your tax return on taxx.lu.