Luxembourg: Personal Taxation
Residence and Liability for Taxation
For taxation purposes, an individual is either resident or non-resident, and nationality is not a factor in determining tax status. An individual is considered resident in Luxembourg if he maintains a residence there with the intention of remaining on other than a temporary basis. A stay of more than six months amounts to residence. In legal terms, an individual is resident if either his tax domicile (domicile fiscale or Wohnsitz) or his usual abode (lieu de sejour habituel or gewohnlicher Aufenhalt) is in Luxembourg.
Double Taxation Treaties (of which Luxembourg has entered nearly 70 at the time of writing) may affect the residence and tax status of individuals.
The tax treatment of non-resident individuals is described under Offshore Legal and Tax Regimes.
Residents are liable to tax on their world-wide income.
An expatriate tax regime for highly skilled employees detailed in Circular LIR n°95/2 issued on 31 December 2010, came into force on January 1, 2011, and provides for significant tax savings for both employer and employee. In order to qualify a number of conditions must be met. The employee must:
- not have been resident or subject to Luxembourg income tax on professional income in the previous five years;
- be a Luxembourg tax resident during the application of the expatriate regime;
- hold a university degree or equivalent and be a technical expert, or have a professional experience of at least five years in the sector of activity which the Luxembourg company aims to expand;
- contribute to the development or creation of economic activities with high added value in Luxembourg;
- not replace any employee which is not covered by the Circular.
When the criteria have been met, the following expenses qualify for tax-exempt status:
- One-off moving costs and house fit-out expenses for the transfer of the household of the expatriate to Luxembourg and for his/her final return at the end of the assignment;
- Travel expenses for emergencies;
- Regular housing costs up to EUR50,000 per annum (increased to EUR 80,000 when shared with life partner) and 30% of the annual fixed remuneration of expatriate;
- School fees;
- Specific cost of living allowance capped at EUR1,500 per annum.