Tax Figures
Corporate Income Tax
22.47% on taxable profits
Income Tax Rate
- Up to € 11 265: 0%
- € 11 265 – € 13 173: 8%
- € 13 173 – € 15 081: 10%
- € 15 081 – € 16 989: 12%
- € 16 989 – € 18 897: 14%
- € 18 897 – € 20 805: 16%
- € 20 805 – € 22 713: 18%
- € 22 713 – € 24 621: 20%
- € 24 621 – € 26 529: 22%
- € 26 529 – € 28 437: 24%
- € 28 437 – € 30 345: 26%
- € 30 345 – € 32 253: 28%
- € 32 253 – € 34 161: 30%
- € 34 161 – € 36 069: 32%
- € 36 069 – € 37 977: 34%
- € 37 977 – € 39 885: 36%
- € 39 885 – € 41 793: 38%
- € 41 793 – € 100 000: 39%
- Over € 100 000: 40%
Luxembourg income tax liability is based on the individual’s personal situation (e.g. family status). For this purpose, individuals are granted a tax class. Three tax classes have been defined:
- Class 1 for single persons.
- Class 2 for married persons as well as civil partners (under certain conditions).
- Class 1a for single persons with children as well as single taxpayers aged at least 65 on 1 January of the tax year.
Married non-resident taxpayers who are not separated can aim for a tax class 2 if they are taxable in Luxembourg on more than 50% of the professional income of their household. If both spouses derive professional income taxable in Luxembourg, the application of tax class 2 leads to a combined assessment. Unseparated married non-resident taxpayers who do not comply with the above 50% condition are granted the tax class 1 or 1a.
Tax is calculated in accordance with a progressive table, ranging from 8% on taxable income in excess of 11,265 euros (EUR) to 40% on income in excess of EUR 100,000 for 2015. A solidarity tax of 7% of taxes (9% for taxpayers earning more than EUR 150,000 in tax class 1 and 1a or more than EUR 300,000 in tax class 2) must also be paid.
Sales Tax
VAT: 15%
Withholding Tax
- Dividends 15%;
- Interests 15%.
Other Tax
Municipal Tax: 6% calculated on taxable profits with an allowance of EUR 17,500.
Time to prepare and Pay Taxes
55 hours
Employers Social Security and statutory contributions
11.05% calculated on gross salary
Employees Social Security and statutory contributions
12.72%- 14.89%, calculated on gross salaries
Payroll
Considering average income statistics and the income tax rate, the cost of living in Luxembourg is relatively high. Taxes in Luxembourg, however, are lower compared to neighboring European countries.
Given the territoriality of tax, only companies that have a sufficiently strong attachment with Luxembourg have unlimited tax liability. This is valid for resident companies, i.e. a company who has its registered office or centre of effective management in Luxembourg.
Non-resident companies, i.e. a company whose registered office is not in Luxembourg but who generates Luxembourg income is subject to limited tax liability.
Remote Payroll
A remote payroll system is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Luxembourg. Under Luxembourg law, companies registered in other countries are allowed to obtain a license to do business and have employees in Luxembourg.
Local Payroll Administration
In some cases, a company will register their business in Luxembourg under one of the forms available: S.A., S.à.r.l., S.e.N.C.S., S.e.C.S. and Sole Proprietorship but prefer to have another company administering its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Internal Payroll
Larger companies with a commitment to Luxembourg may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Luxembourg payroll, and can fulfil all tax, withholding, and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Luxembourgish employment laws.
Currency
EURO
