LuxembourgTax Obligations Detailed

Luxembourg's 2025 tax reforms bring several key changes for employers.

Corporate Income Tax (CIT)

• The standard CIT rate is reduced to 16% from 17% for companies with taxable income exceeding €200,000.
• For companies with taxable income up to €175,000, the CIT rate is reduced to 14% from 15%.
• For income between €175,000 and €200,000, the CIT is €24,500 plus 30% of the excess over €175,000.
• A 7% surcharge for the unemployment fund applies to the CIT.
• Municipal business tax, ranging from 6.75% to 10.5% depending on the location, is added to the CIT and unemployment fund contribution. In Luxembourg City, the combined rate is 23.87%.

Net Wealth Tax (NWT)

• The minimum NWT calculation is simplified, based on the total balance sheet:
  • €535 for balance sheets up to €350,000.
  • €1,605 for balance sheets between €350,001 and €2,000,000.
  • €4,815 for balance sheets exceeding €2,000,000.

Impatriate Regime

• A new impatriate regime offers a 50% tax exemption on annual compensation up to €400,000 (excluding benefits in kind and certain tax-exempt items) for up to eight years.
• Employees must not have resided in Luxembourg or within 150km of its border, nor been subject to Luxembourg income tax in the five years preceding relocation.
• An annual minimum base salary of €75,000 is required.
• Annual reporting to tax authorities is mandatory.

Profit-Sharing Bonus

• The maximum profit-sharing bonus amount deductible by employers and 50% tax-exempt for employees is increased from 5% to 7.5% of the company’s net profits.

Young Employee Bonus

• New employees entering the Luxembourg workforce for the first time with permanent contracts are eligible for a 75% tax exemption for 5 years on bonuses paid out by their employers.

General Information about Taxes in Luxembourg:

• Tax year in Luxembourg corresponds to the calendar year.
• The tax system is administered by the Administration des Contributions Directes (ACD).
• Advance tax payments are generally required for corporate income tax, municipal business tax, and net wealth tax.
• A final tax return and payment are due after a tax self-assessment.

This information is current as of February 5, 2025, and may be subject to change. Consulting with a tax advisor is recommended for specific situations.

In Luxembourg, employee tax deductions encompass various areas, including employment expenses, social security contributions, pension contributions, and specific allowances.

Employment Expenses

• A standard deduction of €540 applies for job-related expenses. This is doubled to €1,080 for married couples or registered partners where both are employed.
• Actual expenses exceeding the standard deduction can be claimed, including costs for tools or specific work clothes.
• Commuting expenses are deductible up to a yearly maximum of €2,574.

Social Security and Pension Contributions

• Both Luxembourgish and foreign (covered by a treaty) social security contributions are deductible.
• Contributions to qualifying employer-sponsored pension schemes are deductible up to €1,200 annually.

Impatriate Regime

• A new regime effective from 2025 provides a 50% tax exemption on gross annual remuneration up to €400,000 for eligible impatriates. This translates to a maximum exemption of €200,000 per year. This regime is applicable for the year of arrival and the eight subsequent years. The employee must not have been a Luxembourg tax resident or lived within 150km of its border for the five years preceding relocation. They also need a minimum annual salary of €75,000.

Profit-Sharing Bonus Regime

• The profit-sharing bonus scheme allows for a 50% exemption on bonuses linked to employer profits, up to 30% of the employee's annual gross salary and 7.5% of the previous year's profits.

Bonus for Young Employees

• Employees under 30 in their first permanent contract in Luxembourg with a gross annual salary under €100,000 can benefit from a 75% tax exemption on bonuses between €2,500 and €5,000.

Other Deductions and Allowances

• An allowance for extraordinary expenses for children not part of the household is available (€5,424 per child annually).
• Interest on property loans, including bridging loans, for acquiring existing homes is deductible. The deduction is full in the first year based on rental value. Specific caps apply for subsequent years (€4,000 in the second year, €3,000 annually for the next five years, then €2,000).

General Tax Information for 2025

• Households with a gross annual income up to €52,400 are exempt from taxes for the 2025 tax year. This applies to all tax classes.
• Actively managed Exchange Traded Funds (ETFs) qualifying as UCITS are exempt from subscription tax as of 2025.
• Taxpayers can opt out of the participation exemption on dividends, liquidation proceeds, and capital gains, as well as the 50% dividend exemption for qualifying shareholdings, on an annual basis.

It's important to remember that this information pertains to the 2025 tax year and might be subject to future changes. Always consult official sources or a tax advisor for the latest regulations.

In Luxembourg, Value Added Tax (VAT), locally known as Taxe sur la valeur ajoutée (TVA), is an indirect tax levied on most goods and services.

VAT Rates

• Standard Rate: 17% (applicable to most goods and services not subject to reduced rates or exemptions).
• Reduced Rates: 14%, 8%, and 3% (applicable to specific goods and services as listed below).
• Zero Rate: Applies to specific cases like intra-community and international transport, exports, and intra-community supplies of goods.

Goods and Services Subject to Reduced VAT Rates

• 14%: Certain wines, some fuel types, advertising brochures, management and custody of credit guarantees.
• 8%: Electricity, natural gas, firewood, LPG, cut flowers and plants (decorative), some works of art and antiques, cleaning in private households, minor repairs (bicycles, shoes, leather goods, clothing, household linen), hairdressing, district heating.
• 3%: Food products, soft drinks, water, children's clothing and footwear, certain pharmaceutical products, some medical equipment (for disabled persons), domestic passenger transport, certain books and periodicals, admission to cultural events and amusement parks, some pay TV/cable TV, agricultural supplies (excluding pesticides), hotel accommodations, restaurant and takeaway food services (excluding alcoholic beverages), bars, cafes, nightclubs, cut flowers and plants (for food production), some new building supplies and construction work, admission to sporting events and use of sports facilities, undertaker and cremation services, domestic waste collection, some telephone services, certain royalties (writers and composers), raw wool, waste and wastewater treatment, certain goods and services for consumption onboard passenger transport, certain works of art, collector's items, and antiques.

VAT Registration

• Threshold: €50,000 annual turnover for resident businesses. No threshold for non-resident businesses. €10,000 threshold for intra-community supplies and for distance selling from other EU countries.
• Voluntary Registration: Available for businesses below the threshold.

VAT Filing and Payment

• Filing Frequency: Monthly, quarterly (for turnovers between €112,000 and €620,000), or annually (for turnovers below €112,000).
• Deadlines:
  • Monthly/Quarterly filers: 15th of the month following the reporting period.
  • Annual filers: 1st March of the following year.
• Electronic Filing: Mandatory through the platform for the Collection of Financial Data (eCDF).
• Payment Deadline: Same as filing deadline.
• Annual Summary Return: Due by 1st May of the following year.

VAT Exemptions

Certain goods and services are exempt from VAT. These include:

• Medical and dental services
• Financial and insurance services
• Postal services
• Education
• Cultural services
• Certain sporting activities

SME Special Scheme

From 2025, a new SME Special Scheme will apply to businesses with EU-wide turnover under €100,000, permitting VAT-exempt sales across EU member states. Participation requires quarterly reporting and an EX number.

As of today, February 5, 2025, this information is current and reflects the latest VAT regulations in Luxembourg. However, tax laws are subject to change, so it's always advisable to consult with a tax professional for the most up-to-date information.

Luxembourg offers various tax incentives for businesses and individuals in 2025.

Corporate Tax Incentives

• Corporate Income Tax (CIT) Reduction: The maximum CIT rate is reduced to 16% from 17%, and for smaller companies, it's reduced to 14% from 15%. The combined rate (including municipal business tax and employment fund contribution) for Luxembourg City companies becomes 23.87%. This applies from January 1, 2025.
• Exemption of Subscription Tax for Actively Managed ETF UCITS: This exemption aims to enhance competitiveness in the European and international financial markets. It became effective on the first day of the quarter following the law's publication.
• Investment Tax Credit: Incentives exist for investments in digital transformation and environmental/energy transition projects. Companies with eligibility certificates can apply for expenditure certificates via MyGuichet. Applications are due two months after the financial year's end.
• Intellectual Property (IP) Regime: Qualifying income from eligible IP assets enjoys an 80% exemption from income tax and full exemption from Net Wealth Tax (NWT). A Luxembourg City company will see an effective tax rate of 4.774% on such income.
• Participation Exemption Opt-Out: Taxpayers can waive the participation exemption on dividends, liquidation proceeds, and capital gains (including the 50% exemption on dividend income) if the exemption would apply due to the acquisition price exceeding EUR 1.2 million (dividends and liquidation) or EUR 6 million (capital gains), starting from the 2025 tax year. The opt-out must be yearly and per shareholding.

Individual Tax Incentives

• Impatriate Regime: A 50% tax exemption on up to EUR 400,000 of gross annual remuneration (excluding benefits in kind and certain cash benefits) is available to eligible impatriate employees for up to eight years after their arrival in Luxembourg, starting from the 2025 tax year. Eligibility criteria include not having been a Luxembourg tax resident or lived within 150km of the border for the past five years and earning a minimum gross annual salary of EUR 75,000. Existing beneficiaries of the prior regime can opt into this new one.
• Young Employee Bonus: A 75% exemption is available on bonuses (between EUR 2,500 and EUR 5,000 depending on salary) given to employees under 30 in their first indefinite contract in Luxembourg, for a maximum of five years, provided the employee remains with the same employer and continues to meet the eligibility criteria (annual salary under EUR 100,000). This applies from the 2025 tax year.
• Profit-Sharing Bonus: The maximum tax-exempt amount of the profit-sharing bonus has increased from 25% to 30% of the employee's gross annual remuneration (before benefits). The amount companies can allocate for this has also risen from 5% to 7.5% of the previous year's profits. This change is applicable from the 2025 tax year.

Other Tax Measures

• Cross-border workers benefit from a tax credit for overtime hours taxed in their residence country (primarily targeting German residents).
• Employees under 30 can benefit from 25% tax exemption on rent subsidy paid by their employer, under specific conditions (available since June 1, 2024).
• The tax credit for hiring unemployed individuals is extended until December 31, 2026.

It is crucial to consult the official tax legislation for precise details and updates, as the information provided here is a summary for informational purposes and applicable as of February 5, 2025, and could be subject to change.