Tax Declaration In Luxembourg

Tax Declaration In Luxembourg: Expats Guide

Navigating the financial labyrinth of Luxembourg’s tax system?

While the Grand Duchy’s economy sparkles, tax declarations might seem a tad less glittery.

Fear not—this guide is your beacon to fiscal finesse in Luxembourg.

What Is An Income Tax Declaration?

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Individuals must complete an income tax declaration form to declare their income and taxes paid during the year. 

This form is intended to ensure that you have paid the correct amount of tax based on your income, including the employee’s gross income, tax-saving investments in instruments such as insurance, provident fund (PF), annuity plans, and the EEE amount given to the employee.

Is It Necessary To File A Tax Declaration In Luxembourg?

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Whether resident or not, a person who receives income in the Grand Duchy must establish one in the country.

Nonetheless, you are not obligated to file a tax return in several circumstances. So, you don’t need it if:

  • Luxembourg’s taxable income in your household is less than 100,000 euros.
  • Your spouse does not receive any income in Luxembourg in your resident home.
  • If someone did not opt for the group taxation system.  
  • You do not receive any income over 600 euros per year that is not deducted at source by taxes.

Even if you can avoid making a declaration in Luxembourg, it may be worthwhile to do so because many things are tax deductible (loan interest, insurance, savings plans underwritten in Luxembourg, childcare and nursery fees, etc.).

Understanding The Income Tax System In Luxembourg

The progressive tax system of Luxembourg: Luxembourg, like many other countries, has a progressive tax system.

Tax rates rise in direct proportion to income level, regardless of source. According to the most recent progressive tax scale, tax rates vary from 0% to 42%.

The income tax system is divided into brackets. An income of less than 11,265 euros is exempt from taxes. The highest rate of 42% applies to income levels of 200,000 euros or more per year.

 Taxpayers’ money is utilized to cover the government’s different public expenses, such as security, transportation, and health care.

Who Is Required To File An Income Tax Return?

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Individuals and businesses, in particular, are subject to income tax in Luxembourg. As a result, they must file a yearly disclosure of their income, which will be taxed.

This gives correct information about your financial condition to the tax authorities. As a result, tax authorities can determine the amount of tax owed and the number of refunds to be issued.

Luxembourg Residents

Residents are those who have their tax domicile, or principal abode, in Luxembourg.

Luxembourg residents who receive income must generally file a tax return with the Luxembourg tax authorities.

You must declare all of your income, including foreign money, regardless of your income source (salary, self-employment, retirement or other pensions, investment income, etc.). Luxembourg’s tax authorities will compute a global tax rate.

If a resident obtains money in another country, they may be subject to double taxation in some instances. A bilateral agreement may also govern the conditions under which this double taxation is enforced.

If both countries have a tax treaty, the global tax rate will only apply to your Luxembourg income. Find out more if you receive payment from multiple countries.

Luxembourg Non-Residents

Non-Luxembourg residents are taxed on their income earned in Luxembourg. Non-residents who satisfy specific qualifications can decide to be treated as residents for tax purposes, allowing them access to all applicable deductions.

They are treated as border residents in the great majority of circumstances. Cross-border commuters, like residents, have their taxes withheld from their wages at the source. The non-resident taxpayer must file a tax return at the end of the year. 

Corrections can then be made based on the circumstances: Additional taxes must be paid, or tax retrocessions must be made based on other tax sources or tax deductions (such as insurance).

Agreements To Avoid Double Taxes

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Luxembourg has signed double taxation agreements (DTAs) with numerous nations worldwide.

These treaties protect individuals and legal entities from being taxed twice on the same income received from multiple nations. 

Individuals and businesses gain from tax relief in the case of tax treaties, such as a credit for taxes paid in the other country.

In such situations, we recommend that you seek the advice of a tax professional, at least for your first tax returns. You will then better understand the Luxembourg tax system and the measures that apply to your situation.

Tax Returns From Luxembourg

Taxpayers must file an annual tax return to declare their income. This tax return will be used to calculate taxes depending on the income amount and associated tax class.

When Is The Best Time To File Your Tax Return?

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Luxembourg calculates income tax on a calendar year basis, from January 1 to December 31. You must declare your income for the previous calendar year each year.

It is essential to understand the significant dates and deadlines for filing tax returns to comply with Luxembourg tax legislation. Late payments may result in penalties or interest.

The exact tax return deadlines may differ from year to year.

Since the fiscal year 2022, income must be declared to the tax authorities by December 31 of the following year. This deadline also applies to corporate income taxes, wealth taxes, and company taxes.

Paper Or Online Tax Returns

Each taxpayer receives a paper tax return or an invitation to file electronically in February.

The individual must then report the previous year’s income to the IRS. The following forms of tax returns are available:

  • In paper form on the appropriate administration form(s)
  • For greater convenience, use the online declaration rather than the paper declaration.

Online Tax Services

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E-filing lowers expenses by providing free filing choices and removing the need for paper forms, postage, and expert tax preparation services.

 It allows for faster tax refund processing, immediate receipt notification, and saving and accessing previous returns electronically.

Following are some helpful tax return software:

  • Tax Return by tax.luSpuerkeess – MyTax
  • Tax Returns With MyGuichet.lu
  • Taxback
  • Neotax

How Do I File My Taxes Online?

It is simple to file your taxes electronically. Go to the guichet.lu website, choose your status (resident or non-resident), and then follow the instructions.

  • Guichet.lu, the Luxembourg government’s administrative handbook, has also posted a tutorial online. That will walk you through the process of filing your tax return step by step.
  • Guichet.lu also provides a beneficial video that will walk you through the entire process of completing your taxes online.

Please remember that you must adhere to the dates for submitting your income. You may be subject to late payment interest and/or a fine if you do not comply.

What Information Should I Declare On My Tax Return?

The taxpayer must declare all of his income on his tax return for the previous year.

All declared income and spending must be backed up with proper documentation. Employers, various funds, insurance firms, service providers, and so on will provide these to you soon. If you need these documents, feel free to contact your service providers.

Income That Must Be Declared

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Individuals have eight types of taxable income:

  • Earnings from a job
  • Self-employment earnings, including director’s fees
  • Profits from business activity
  • Agriculture or forestry revenue is considered investment income, as is property and rental income
  • Income through retirement pensions, alimony, and other sources

Deductible Costs Or Expenses

To arrive at a net income, the taxpayer can deduct specified expenses from each of these categories.

Deductions and tax credits are also available to the taxpayer, which include:

  • Employment-related expenses: Certain expenses, such as work-related travel expenses, can be deducted from taxable income.
  • Childcare costs or alimony in the event of divorce 
  • Pension contributions 
  • Charitable contributions

All of these figures, income, and expenses, are added together to compute taxable income. On this taxable income, the tax will be determined based on a bracket.

Income Tax Payment

Taxation based on tax classes

Three tax classes are defined based on various criteria:

  • marital status (single, married, divorced, widowed….),
  • parental status (dependent children or not)
  • resident/non-resident status 
  • threshold of age 64

These tax classes are identified by the letters 2, 1a, and 1. The most favorable class is Class 2.

Tax class 2 is for married couples or civil partnership couples. Those who have been divorced or widowed can also benefit during the transition time. 

More information is available on the administration’s website.

You may fall into one of two tax categories depending on your circumstances. Your tax class is determined by the administration’s withholding tax form. T

he tax class specifies how the tax is calculated depending on the taxpayer’s total income.

Tax Notification And Payment

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The tax authorities will send you your tax notification once your taxes have been calculated. This will notify you how much you owe the IRS or what refunds you are eligible for. Any outstanding balances must be paid as soon as possible.

Limitation Of Statute

Luxembourg tax authorities have up to five years to require tax payment or tax return filing.

 If a deferred payment is allowed, this term may be extended. In the case of (i) an insufficient or incomplete tax return or (ii) failure to file a tax return, the normal statute of limitations may be extended to ten years.

Tax Return Deadline

Each year, a tax return or annual WHT adjustment form must be filed by December 31 of the year following the year in which the income is received.

Conclusion

Mastering tax declarations in Luxembourg isn’t just about numbers; it’s about gaining clarity in a financial world intertwined with regulations.

Armed with knowledge, you’re now poised to approach Luxembourg’s tax system with confidence. Fiscal Flourish!

LuxTax Luminance!

But wait! There’s lot more that you might be interested in to follow:

  • Tax Brackets In Luxembourg
  • Tax Consulting In Luxembourg
  • Tax System In Luxembourg

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