Luxembourg: Personal Taxation
This page was last updated on 25 March 2021.
Income tax (French: impôt sur le revenu) is charged on nine types of income:
- Trade and 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)
The many allowances, deductions and exemptions include child relief, child tax credit, 'extraordinary' children’s and single parent abatement; deductions for employment-related expenses, interest payments and those related to share purchase; pay exemptions for unsocial hours worked and part exemptions on dividend income.
Income tax bands and rates depend on family status, and are progressive to 42% (plus a 7% unemployment fund surcharge). The surcharge rises to 9% for income above €150,000 for single taxpayers and €300,000 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, to be filed by 31st March of the following year. Quarterly advance payments of tax are made on 10th 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 2020, the following social security contributions apply:
- Health insurance 3.05% each from employee and employer
- Pension insurance 8% each from employee and employer
- Accident insurance 0.75% from the employer
- Unemployment insurance 1.4% from the employee.
Additionally, employers must contribute from 0.53% to 2.88% towards the employers’ mutual scheme, and pay €45 per employee towards health and safety costs.