Luxembourg: Personal Taxation
Income tax (Impot sur le Revenu or IR) is charged on nine types of income:
- Income from trade or business - business income
- Professional income
- Agricultural and forestry income
- Self-employment income
- Employment income
- Pensions and annuities
- Investment income
- Income from letting and leasing
- Other income (including capital gains)
There are many allowances, deductions and exemptions in the Luxembourg income tax regime, including child relief, child tax credit, extra-ordinary childrens abatement, mono-parental abatement, deductions for employment-related expenses, deductions for interest payments, deductions related to share purchase, exemptions for pay for unsocial hours worked, part exemptions on dividend income, etc etc. These are described in great detail in the legislation.
Income tax bands and rates depend on family status, and are progressive to 40% (plus a 7% unemployment fund surcharge). The surcharge rises to 9% for income above EUR150,000 for single taxpayers and EUR300,000 for married taxpayers.
Dividends are normally taxed at source (via a withholding tax of 15%) and are added to total income, with an appropriate tax credit.
Employment income (number 5 above) is taxed at source through a monthly withholding tax applied by the employer, which additionally deals with social security contributions. All other types of income are declared on an annual tax return which is to be filed by 31st March of the year following the year being dealt with. Quarterly advance payments of tax are made on 10th of March, June, September and December, on the basis of one quarter of last year's actual tax bill.
See Double Taxation Treaties for details of the impact of treaties on the tax position of those foreign nationals covered by treaties.
In 2013, social security charges apply:
- Health insurance, 3.05% each from employee and employer;
- Pension insurance, 8% each from employee and employer;
- Health at work 0.11% from employer;
- Accident insurance, about 1.15% from the employer;
- Unemployment insurance, 1.4% from the employee.
Additionally, employers must pay between 0.48% and 2.74% to finance the newly created mutual insurance institution.
Employees are required to pay a depedency contribution amounting to 1.4% of gross salary above EUR5,622.60. The contribution is not tax deductible.