How does income tax work in Luxembourg

Tax law in Luxembourg

Income tax

The legal basis for the income taxation of natural persons are Articles 1-157 of the Income Tax Act of December 4, 1967 in its latest version. The tariff is based on the system of partial quantity grading with percentage percentages. For the 2016 tax year, the tax rates are 8 percent for taxable income between 11,265 and 13,173 euros, and up to 40 percent for income over 100,000 euros. From the 2017 tax year, the maximum tax rate is 42 percent for income of more than EUR 200,004.

The Income Tax Act (Loi du 4 décembre 1967 concernant l'impôt sur le revenu) is available in French from the Journal officiel du Grand-Duché de Luxembourg, the Luxembourg law gazette.

Corporation tax

Luxembourg tax its Luxembourg resident companies on their worldwide income and non-resident companies only on income from Luxembourg source. The legal basis for corporate income tax is Art. 158 ff. Of the Income Tax Act of December 4, 1967 in its latest version. Statutory corporations, associations of persons and estates that have their registered office or their main place of business in Luxembourg are subject to corporation tax. As of the 2019 tax year, corporate income tax was set at 15 percent for taxable income of no more than 175,000 euros and 17 percent for taxable income of more than 200,000 euros. Companies with taxable income between 175,000 euros and 200,000 euros are subject to corporation tax, which is calculated as follows: 26,250 euros plus 31 percent of the tax base over 175,000 euros.

The previously existing minimum taxation with regard to corporation and trade tax was abolished from the 2016 financial year. Instead, there has since been a minimum taxation with regard to wealth tax. If the total of the long-term and short-term financial assets as well as the cash holdings exceed 90 percent of the balance sheet total and the turnover is more than 350,000 euros, the minimum taxation of the companies is 4,815 euros. The other companies are subject to a minimum tax on assets of between 535 and 32,100 euros, depending on their total assets.

Surcharges to feed the employment fund are levied for both income tax and corporation tax.

value added tax

The legal basis of the Luxembourg sales tax is the Value Added Tax Act of February 12, 1979 in its latest version. Four tax rates have existed since January 1, 2015: The normal tax rate is 17 percent. There is also an increased interim tax rate of 14 percent and reduced tax rates of 8 percent and 3 percent for certain services. The VAT return can be submitted electronically. Further information is available at www.aed.public.lu.

The VAT Act (Loi du 12 février 1979 concernant la taxe sur la valeur ajoutée) is available in French on the des Journal officiel du Grand-Duché de Luxembourg, the Luxembourg law gazette.

Double taxation treaty

In order to avoid double taxation, the agreement between the Federal Republic of Germany and the Grand Duchy of Luxembourg on the avoidance of double taxation and the prevention of tax evasion in the area of ​​taxes on income and assets of April 23, 2012 must be observed. According to the announcement in the Federal Law Gazette of August 26, 2014, the agreement entered into force on September 30, 2013.

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