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Luxembourg: Personal Taxation

Residence and Liability for Taxation

This page was last updated on 24 January 2020.

For taxation purposes, an individual is either resident or non-resident; nationality is not a factor in determining tax status. An individual is deemed resident in Luxembourg if he or she maintains a residence there and intends to remain for at least six months. In legal terms, an individual is resident if either his or her tax domicile (French: domicile financiale) or usual abode (lieu de séjour habituel) is in Luxembourg.

Double taxation treaties (of which Luxembourg has entered into 80 at the time of writing) may affect an individual’s residence and tax status. The tax treatment of non-resident individuals is described under Offshore Legal and Tax Regimes. Residents are liable to tax on their worldwide income.

An expatriate tax regime for highly skilled employees (detailed in Circular LIR 95/2 issued on 31 December 2010) came into force on 1 January 2011. It provides for significant tax savings for both employer and employee.

On 14 October 2020, the government has proposed changes to the regime, due to be implemented on 1 January 2021. To qualify a number of conditions must be met. The employee must:

  • not have been a Luxembourg tax resident or residing less than 150 km from Luxembourg or receiving income taxable in Luxembourg in the previous five years
  • be a Luxembourg tax resident
  • either be seconded to Luxembourg from abroad or locally hired in Luxembourg from abroad. A seconded employee should have some experience in the sector; a local hire must have in-depth expertise in the sector.
  • have an annual base salary of at least €100,000.
  • not replace any employee who is not benefiting from the regime.

In addition, no more than 30% of the company’s full-time employees may benefit from the regime (unless the company was established in Luxembourg less than 10 years ago.)
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 €50,000 per annum (increased to € 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 €1,500 per annum.

 

 

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