1. Taxation of individuals in Luxembourg
The Luxembourg tax system taxes individuals on their income according to clear rules tailored to each situation. This chapter outlines the main principles of this taxation system.
Who is taxable?
In Luxembourg, any person receiving income is potentially taxable, whether a tax resident or a non-resident. The taxation regime depends on the type of income and the place of residence.
Withholding tax and tax return
For certain types of income, such as salaries, tax is withheld directly at source by the employer. This means that the tax is automatically deducted before the employee receives their net salary.
Other types of income, such as rental income or investment income, are not necessarily taxed at source and must be declared each year in the tax return.
Types of taxable income
The main categories of income subject to tax are:
- Professional income (salaries, self-employment income)
- Real estate income (rents)
- Financial income (interest, dividends)
- Capital gains (for example, from the sale of real estate)
- Pensions and other miscellaneous income
Each category follows specific rules that we will address in the following chapters.
Calculation of tax
Tax is calculated based on a progressive scale that takes into account the taxpayer’s total income, as well as their family situation, through a system of tax classes.
Tax deductions
Certain expenses or charges may reduce the taxable base, which lowers the final amount of tax to be paid.
These fundamental principles form the basis of your understanding of the Luxembourg tax system.
In the following chapters, we will go into detail on each of these aspects to guide you step by step : taxable income categories, the functioning of the scale and tax classes, possible deductions, as well as reporting obligations and methods of paying the tax.