LUXEMBOURG
TAXATION OF NON-RESIDENTS
On 28 April 2010, the Luxembourg government introduced a new Law in order to bring certain Luxembourg tax provisions regarding non-residents into line with European Union law.
Non-resident individual taxpayers were subject to progressive income tax rates with a minimum tax rate of 15% on their Luxembourg source income.
The same income derived by a Luxembourg resident is not subject to a minimum tax rate. In consequence, the non-resident was not able to benefit from the tax exempt band of the progressive income tax schedule. In addition to this, non-resident individual taxpayers may only elect to be treated as resident taxpayers if they derive at least 90% of their professional income in Luxembourg.
The new Law limits the tax rate applicable to non-resident individual taxpayers in respect of income earned in Luxembourg of a non-professional nature. As a non-resident taxpayer, it is now possible to choose either the 15% minimum rate OR the progressive rate as per the tax tables. However, the progressive rate is calculated by adding the actual income to a figure of €11,265 (the tax exempt band) to arrive at a hypothetical taxable income and then the progressive rate as per the tax tables is applied.
The total income will be taken into consideration to determine whether the threshold of 90% is met as regards the election to be treated as resident taxpayers.