Expatriate tax ebook - Luxembourg

Facts and figures

Pre arrival procedures
Tax Year
Tax Return Deadline
Income Tax Rates

Pre arrival procedures
According to a law applicable as from 2008, work permits and residence permits for third-country nationals have been merged into one unique document called “residence authorization”.

Immigration formalities vary according to the citizenship of the individual coming to Luxembourg and/or the length of the stay.

1. EU (1), Switzerland and EEA (2) Workers
1.1. Right to move and stay up to 3 months
According to the current Luxembourg immigration law, EU, Switzerland and EEA Nationals enjoy the Community right of free movement and have the right to enter Luxembourg territory and to remain here for up to 3 months.

No permit is required for these citizens but only a national identity card or a valid passport is necessary to work on the Luxembourg territory.

The only exception to the above is a transitional regime extended to 31/12/2011 specifically applicable to citizens from Bulgaria and Romania who still need to have a work permit for some economical sectors.

1.2. Stay of more than 3 months
EU, Switzerland and EEA citizens have a right to stay in Luxembourg for more than 3 months if they:

• are employed, self-employed or may prove sufficient resources and have a health insurance coverage;
• register with the municipality within three months of their arrival to apply for a registration certificate.

After a continuous period of 5 years, EU, Switzerland and EEA citizens are entitled upon request to the right of permanent residence in Luxembourg.

2. "Third-Country" Citizens outside of EU, Switzerland and EEA countries 
“Third-country” citizens need a visa or a valid passport to enter the Luxembourg territory. They also have to fill in an arrival certificate at the municipality of the place where they live within 3 days of their arrival. For stays of more than three months, they must apply for a temporary residence authorization from the immigration ministry before they arrive in Luxembourg.

2.1. Employment
No employer may recruit a third country citizen who does not have a “residence authorization”.

In principle, the “residence authorization” must be applied for by the third-country citizen before entering Luxembourg.

In some circumstances (employment within a same group of companies, artists, sportsman...), the third-country citizens have the right to come and stay for business trip in Luxembourg for less than 3 months within one calendar year without applying for the “residence authorization”.

Otherwise, all third-country citizens shall fulfill the following conditions in order to obtain the required “residence authorization”:

• The work has to be declared vacant by the employer to the Luxembourg employment authorities (ADEM) that will check if the job cannot be given by priority to any available Luxembourg citizen or EU national.
• The worker shall have the professional qualifications required for the work.
• The work shall serve the economic interest of Luxembourg.
• The worker shall already have an employment contract.
• The worker shall prove of an appropriate accommodation.

These conditions do not apply to “highly qualified” employee (i.e. higher education qualification or at least 5 years of professional experience).

The “residence authorization” for employment is granted for a period of only one year for the same work and with the same employer. Renewals are possible, the first one for a maximum of two years, the following ones for a maximum of three years.

By exception, companies established in a EU/EEA countries or in Switzerland may, within the framework of a provision of cross-border services, freely assign their workers regardless of their nationality, to Luxembourg, provided that these workers have a work permit for the duration of the assignment in the home country of the seconding company.

On request of the host company, a residence authorization is delivered to temporarily seconded third-country workers within the frame of intra-group assignments.

2.2. Self-employment
Third-country citizen self employed need a “resident permit for self-employed” which is granted under the conditions that they have the relevant qualifications for their activities, they prove of sufficient financial resources and a suitable accommodation and that the activities shall serve the economic interest of Luxembourg. The resident permit for self-employed” is delivered for a duration of maximum 3 years.

They also need an “authorization of establishment” delivered by the Ministry of “Classes Moyennes” which is required under Luxembourg law as a permission to set up a business in various economic sectors. The residence permit is linked to the business permit in the way that it cannot be granted if the conditions of the authorization of establishment are not met.

Tax Year
The Luxembourg tax year runs from 1 January to 31 December.

Tax Return Deadline 
The Luxembourg tax year runs from 1st January to 31st December. The Personal Income Tax return should be filed before 31st March, but the administration remains flexible on this point.

 Income Tax Rates
Individuals' income is taxed on the basis of a progressive tax schedule according to income brackets.

For class 1, first € 11,250 is taxed at 0%. Subsequent income is taxed at rates between 8% to a maximum of 38% on income in excess of € 39,900. For class 1a and 2, the exempt bottom brackets have been increased to € 22,500.

There are 15 intermediary steps of taxation.

As from 2011, an increased solidarity tax amounting to 4% of the calculated income tax due is added to the overall charge (6% above a taxable income of € 150,000 in class 1 and 1a and above € 300,000 in class 2).

Tax Classes
The tax calculation is determined by means of tax classes. Three tax classes are subsisting:

• Class 2: Married couples taxed jointly (or non-married partners declared jointly); widow(er)s and persons divorced for three years or less;
• Class 1a: Singles and persons divorced for more than three years, all with dependent children, widow(er)s, singles aged 65 or more;
• Class 1: Single individuals under 65.

Married non-resident taxpayers are placed in Class 2 if more than 50% of the professional income of their household derives from a Luxembourg source; otherwise, they are placed in intermediary class 1a.

Children tax bonus
An annual child tax bonus amounting to € 922.50 is paid directly to taxpayers per dependent child belonging to their household. This payment is made in addition to the family allowances.

Joint taxation of Life partners (non married)
After a full year of common domicile or residence (to be recognize in Luxembourg or abroad), resident and non-resident “life partners” may opt to be jointly taxed under certain conditions.

Lakebrink case - Deduction of mortgage interest for non-residents
Subsequently to the Lakebrink case, non-resident tax payers are able to claim that their mortgage interest from loans financing their principal residence, even if it is located out of Luxembourg, be taken into account to reduce the tax rate applicable to their Luxembourg income providing they derive at least 90% of their professional income from Luxembourg.

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