LUXEMBOURG
INDEX
Tax Tip 1: Introduction and Deadlines
Tax Tip 2: Completion of Tax Return
Tax Tip 3: Notion of residence and Tax Implications
Tax Tip 4: Income -
Tax Tip 5: Income -
Tax Tip 6: Income -
Tax Tip 7: Income -
Tax Tip 8: Income -
Tax Tip 9: Income -
Tax Tip 10: Income -
Tax Tip 11: Income -
Tax Tip 12: Income -
Tax Tip 13: Real Estate -
Tax Tip 14: Tax Deduction -
Tax Tip 15: Tax Deduction -
Tax Tip 16: Tax Deduction -
Tax Tip 17: Tax Deduction -
Tax Tip 18: Tax Deduction -
Tax Tip 19: Tax Deduction -
Tax Tip 20: Claiming the Deductions
Tax Tip 21: Inheritance Tax
Tax Tip 22: AGN Tax Surveys
TAX TIP 2: COMPLETION OF TAX RETURN
Just because the taxman did not send you a blank tax return does not mean that you do not have to complete one. It is your legal obligation to submit a tax return if you exceed the following limits:
· If you are single and have total annual income of more than €100,000
· If you are married but only one spouse is earning and your taxable income is more than €36,000
· If you have a mortgage interest claim.
In all these cases you must submit a tax return.
If you have arrived or are leaving
Luxembourg during the year and have allowable expenses to deduct, you can submit
a tax equalization form.
If you are not sure which category you fall into contact
us so that we can do a calculation for you.
TAX TIP 1: INTRODUCTION AND DEADLINES
Your annual tax return should be handed in by 31 March of each year.
If you are late
the tax office can charge you an extra 10% of the tax you owe.
If you do not know
what supporting documents you need contact us to get your documents checklist.
TAX TIP 3: NOTION OF RESIDENCE AND TAX IMPLICATIONS
If you live across the border and work in Luxembourg you still have to submit a tax
return in Luxembourg because this is where you earn.
If you earn more than 50% of
your family income in Luxembourg, your tax class is in accordance with your family
situation. If, in addition, you earn more than 90% of the family income in Luxembourg
you are entitled to all the tax deductions.
If you only live in Luxembourg during
the week you are a non-
If you have doubts
as to which category you are, and what is the most advantageous,
TAX TIP 4: INCOME -
By February you should receive a certificate of remuneration from your employer.
This
certificate should contain all the information you require for your tax return. It
shows your fixed allowance for travelling between home and work and other entitlements.
In addition, you can also claim for the following expenses:
· Professional subscriptions
· Professional literature
· Courses
· Legal fees defending your employment and earning capacity
· Costs of moving to Luxembourg
If you need help in claiming any of these expenses, contact us and we will point you in the right direction.
TAX TIP 5: INCOME -
If you have not been in Luxembourg all year you can choose between doing a tax return
only for the period you were here or for the whole year.
If you choose to declare
your foreign earnings you may be entitled to a tax reimbursement.
This means you also
have to declare the salary and any other income you earned abroad.
But don't worry,
the Luxembourg tax authorities will not ask you to pay tax again on the income you
earned abroad.
Do not forget that accepted languages are French and German; therefore
if necessary get a translator.
If you need any help or further advice, just contact us .
TAX TIP 8: INCOME -
If you are self-
You must also:
· Request a trading permit
· Register for VAT
· Register for social security
· Maintain proper accounts
· Keep all invoices and receipts
We can ensure that you claim all the expenses to which you are entitled.
We can save
you taxes and social security, and take the time and hassle out of the paperwork.
TAX TIP 14: TAX DEDUCTION -
Insurance premiums you pay to a European Union insurance company are tax deductible
if the policy is:
-
-
-
The
taxman allows you a deduction of €672 for each member of your family. So, if you
are married with two children you can deduct 4 times the of €672, ie. €2,688 and
your tax rebate could be €1,050.
We work with an insurance company that can provide
you with the relevant policies.
TAX TIP 15: TAX DEDUCTION -
Payments into an authorised personal pension scheme are tax deductible if the policy
runs for more than ten years.
You can deduct from €1,500 to €3,200 per annum depending
on your age when you subscribe for the policy. In addition, your spouse can deduct
the same amount for his or her own pension insurance.
If your employer has organised
a complimentary pension scheme you can also contribute personally and deduct up to
€1,200 personal contributions per annum. Your spouse can also deduct this amount.
We
work together with an insurance company that can provide you with the authorised
pension policy or help your employer to introduce a complimentary pension scheme
for their employees.
TAX TIP 16: TAX DEDUCTION -
The amount you save in a Luxembourg building society, "Caisse d'Epargne Logement",
is deductible from your taxable income and they pay you up to 2% interest.
To be entitled
to a cheap loan you must have saved 50% of the amount you need. Then the building
society will give you a fixed interest loan at an interest rate of 3.75%.
If you want
to buy something before you have saved the 50% then the building society can organise
interim financing for you with a local bank.
If you want to withdraw the money before
10 years you can use the money for redecoration or renovation otherwise you need
to reimburse the tax benefits. After 10 years you can take out the money and use
it for any purpose.
You can deduct up to €672 for each member of your family. For
example, a married couple with two children can deduct €2,688 and get a tax rebate
of €1,050. That is a return of 38.95% in the first year. Where do you get that
in today's market?
We work together with a building society and can assist you in
opening an account and apply for a home loan.
TAX TIP 17: TAX DEDUCTION -
Interest that you pay to anybody on any type of loan, credit or overdraft is tax
deductible.
You can deduct the interest you pay on a credit card, overdraft or personal
loan received from a bank, your parents, a relative or anyone who lends you money.
The
money can be used for any purpose.
All you have to do is include in you tax return
a certificate or letter from your bank, or whoever lends you money, stating the amount
of interest paid and the amount outstanding on your loan as at 31 December.
The maximum
amount you can deduct is €672 per family member. Therefore, a married person with
two children can deduct €2,688 and get tax relief at 38.95% giving you a tax rebate
of €1,050.
So the real cost of your loan is 61.05% of the interest rate you pay.
Mortgage
interest is treated differently.
If you buy a house that needs renovating before you
can move in then the mortgage interest you pay is deductible without limit. You
can also deduct other expenses such as bank commissions or notary fees paid in relation
to the mortgage.
From the day you move in the amount of mortgage interest you can
deduct is limited and the other expenses such as bank commissions or notary fees
paid in relation to the mortgage are not deductible. The mortgage interest limit
for the first five years is €1,500 per family member.
TAX TIP 18: TAX DEDUCTION -
If you are divorced and your children do not live with you the maintenance payments
you make are tax deductible.
For the children you can deduct up to a maximum of €3,480
per child per year.
For the ex-
Evidence of payment
must be provided to the tax office.
In addition, if your divorce was granted before
1 January 1998, a joint request for the deduction should be signed with your ex-
TAX TIP 19: TAX DEDUCTION -
If you have a cleaner or a child minder, or use a crèche, the costs might be deductible.
The
standard deduction is €3,600 per year. However, of your cost is higher this can
be increased depending on your level of income.
These are extraordinary charges and
are tax deductible if they are effectively extraordinary. Firstly, they must exceed
a certain percentage of your income and the expenses must be considered as unusual
and unavoidable.
Examples of extraordinary expenses are: medical expenses not reimbursed
by medical insurance; parent or family financial support; funeral expenses; expenses
in relation to a lawsuit if you were innocent; divorce expenses. The tax office
decides what is extraordinary or not.
It is important how you word your claim and
the evidence you provide. We can improve your chances to get the deduction.
TAX TIP 20: CLAIMING THE DEDUCTIONS
If you prefer a tax rebate now instead of a tax reimbursement later, we can help
you fill in the claim forms to get them added to your tax card.
The tax card arrives
from your commune after you have filled in the annual census in October each year.
It
gives you the amount of travel expenses you are allowed between work and home and
your tax code showing whether you are single, married, divorced or separated.
If you
fill in the correct forms the tax office will add your deductible expenses onto your
card.
The information on your tax card will affect the monthly tax deductions from
your salary.
Be aware, if the employer does not receive your tax card, he is supposed
to charge you the maximum amount of tax at 38.95%.
TAX TIP 21: INHERITANCE TAX
Inheritance tax, in general, is due in the country where the deceased was resident
at the time of death and where the deceased is to be buried.
Inheritance tax is paid
in the country where the house or land is situated.
It is important that you have
written a will either privately or through a Luxembourg notary to ensure that your
estate is divided up amongst your heirs as you wish. Otherwise the court could cause
a significant delay in distributing your assets.
In Luxembourg, no inheritance tax
is due if the deceased left surviving spouse and children. The surviving spouse
and each of the dependents should inherit an equal part of the estate of the deceased.
If
the surviving spouse chooses to keep the use of the family home and furniture she
renounces her part of the other assets.
If the surviving spouse is not the parent
of the deceased's children then inheritance tax is due.
The base tax rate for a spouse
without surviving children is 5% and 6% between brothers and sisters. The rate varies
from 5% to 15% if the heirs are not related to the deceased.
For example, on the inheritance
of €300,000 a spouse with surviving children will not pay any tax, a spouse with
no surviving children would pay €22,700, a brother or sister would pay €26,000 and
a third party would pay €61,000.
Inheritance tax can be avoided or reduced by writing
a will and creating a holding company and/or discretionary trust, or setting up a
marriage settlement contract. We can help you on all of this.
TAX TIP 7: INCOME -
If you have retired you should receive a certificate of remuneration every year. You
need this to fill in your tax return.
If you also receive a complementary company
pension and your employer has deducted tax at source then the pension payments you
receive from the employer's scheme are tax free.
If you left the company before retirement
and you cashed in your company pension scheme, you may be subject to tax. However,
this can also be tax free. This needs to be checked out on a case-
If
you invested in a private pension scheme and have reached the age of 60 or 65, a
lump sum payment is taxed at a maximum of 19.5%. On monthly payments 50% of it is
tax exempt.
TAX TIP 9: INCOME -
Interest from bank deposits or bonds, or interest from lending money to a friend
or family, dividends earned on shares must all be declared.
Since 2006, interest earned
on Luxembourg bank accounts do not need to be declared if your Luxembourg bank has
withheld tax at source. For Luxembourg residents the tax rate is 10%.
However, you
still have to declare interest earned on foreign bank accounts.
If you are a Luxembourg
resident and have deposits in any of the other 27 European countries, except Austria
and Belgium, the banks are obliged to inform your tax office of the amount of interest
you have earned. Austria, Belgium, Switzerland and the Channel Islands deducted
tax at source of 15% until 31 December 2007 and now deduct 20% at source and pay
it over to the Luxembourg authorities. This does not mean you do not have to declare
it.
Luxembourg has also abolished wealth tax for Luxembourg residents. This means
that you do not have to tell anyone how much money you have.
Only 50% of the gross
dividends received from European companies are taxable. If the paying bank or company
has withheld some tax at source you will get a tax credit.
The first €1,500 (€3,000
if you are married) of investment income is tax free.
Finally, you can deduct all
bank charges, dealers' commissions and interest on borrowings to invest, or a standard
deduction per annum of €25 or €50 if you are married.
With all these rules on tax
at source it is important that you plan and structure your savings properly. There
are ways of minimizing taxes on savings and investments.
TAX TIP 10: INCOME -
If you own less then 10% of the total share capital of a company and you have held
these shares for more than six months, any capital gain you make is tax-
However,
you cannot deduct any loss you make.
If you own more than 10% of the total share capital
of a company, any capital gain made is taxable at a maximum rate of 19.5%.
Finally,
if you buy and sell any amount of shares within a six month period, the capital gain
you make is fully taxable. However, losses can be off-
There is also a tax-
TAX TIP 11: INCOME -
If you own a house in Luxembourg and it is your principal private residence and you
decide to sell it, there is no tax on any gain you make. This is valid for two years
after you have moved out, to give you time to sell (as long as you do not rent it
out during this period). After this period any gain will be taxed.
The tax authorities
must be informed.
Any other properties you have in Luxembourg, which you have owned
for more than 2 years, the gain is taxable with a maximum tax rate of 20% from 2008.
Any
gains made on property sales within two years is taxed at rates up to 38.95%.
If you
owned a property for more than two years, a tax-
In addition, a house inherited
from your parents gets another tax-
TAX TIP 12: INCOME -
If you own a piece of land or a house in Luxembourg which you rent out, you will
pay tax on the profit made.
The profit is the difference between the rent received
and the costs. The costs can include depreciation, mortgage interest, agent's fees,
property taxes and repairs and maintenance.
Depreciation is a percentage of the purchase
price of your property and the rates are between 4% and 6% during the first five
years.
Capital gains made and rental income earned on property owned in other countries
are taxed in that country, except in the UK where capital gains made by non UK residents
on the sale of UK based real estate is not taxed.
Any profit or loss made on rentals
must be shown in your tax return in Luxembourg.
TAX TIP 13: REAL ESTATE -
Did you know that when buying a new house, or renovating an older property, you can
recover 80% of the VAT?
Most renovation work is eligible for a VAT reduction but not
all.
You can request companies carrying out the work to apply a lower VAT rate to
their invoices. To do this they must apply to the VAT office who must answer within
six months of application. Otherwise, you can apply to reclaim the VAT.
TAX TIP 22: AGN TAX SURVEYS
We are the Luxembourg member of AGN international, an association of independent
accounting and consulting forms with members in 86 countries. AGN conducts tax surveys
covering Personal Income Tax, Company Tax, Inheritance Tax, VAT and the use of Parent
Companies.
The surveys show the amount of income that is left in the pockets of an
employee or shareholder of a company after all taxes have been paid and attempts
to rank the European countries in order od the most money in the pockets of the employee
or shareholder.
For the Personal Income Tax survey we use the example of a married
person with two children who has a company car and a mortgage. The country that
leaves most net salary in the pocket of such an employee is Russia. Luxembourg ranks
7th from a list of 21 countries, with Switzerland in 5th place and France in 6th. Germany
is in 10th place, the UK 15th, Holland 18th and Sweden, Finland and Slovenia making
up the last three. If you look at what an employee costs an employer you find that
employers' charges are highest in France at over 40% followed closely by Sweden. Luxembourg
employers' costs are around 13% of the gross salary.
In the Company Tax survey we
use the example of a manufacturing company with a predefined balance sheet and profit
and loss account. We establish how much in dividend will be paid out by the company
to a non-
The Inheritance Tax survey is based on a deceased person
leaving a spouse with surviving children. His estate consists of a house, some cash
and some shares. In 11 countries in Europe (including Luxembourg and Switzerland,
but not the UK) there is no inheritance tax to pay if you leave your assets to your
spouse and children. The highest inheritance tact is paid in Greece. Three countries
(not including Luxembourg or the UK) charge no inheritance tax on houses and four
(not including Luxembourg or the UK) charge no inheritance tax on cash and shares.
The
VAT survey shows that the lowest VAT rates are charged in Cyprus and Luxembourg at
15% and the highest are in Denmark and Sweden who charge 25%. Also, the VAT registration
limits vary greatly amongst the European countries.
Tax Tip 6: Income -
If you have been made redundant for economic reasons an amount of €18,843.60 (12
x minimum social salary) of the redundancy settlement is tax exempt. If your indemnity
is more, some of it will be taxed at a lower rate as extraordinary income.
If your
employer requested an advance agreement from the tax office and therefore deducted
the right amount of tax, great! If not, you could be entitled to tax reimbursement. To
claim this you have to do a tax return.
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