There are five categories of taxable income in Luxembourg:
Income from trades or businesses, including net profits from a trade or business, including agriculture and forestry income;
Employment income, including salary and all benefits-in-kind (e.g. housing or the use of a company car), as well as all sick pay, maternity benefits or other disability payments made in lieu of salary. Exempt from income tax are certain bonuses paid for night or overtime work (up to specified limits), severance pay (again, up to limits) and seniority bonuses, such as those paid to employees completing 5, 10 or 20 years of service in a company.
Pensions and annuities, on which residents must normally pay tax as they’re received, except in the case of pensions paid by a foreign government with which Luxembourg has a double taxation treaty. All forms of private pension are included in taxable income even when paid from abroad.
Investment income, including most types of interest and dividend (so-called passive investment income) and net income from rented property, as well as ‘income’ from home ownership (see below);
Other income, including any payments for jobs or services in excess of €250 and taxable capital gains.
Luxembourg also requires taxpayers to pay for the benefits of home ownership by adding a nominal amount to their investment income. The value of home ownership is calculated by reference to a property's ‘unitary value’. Unitary value is usually no more than 2 per cent of the actual market value of the property, and your taxable ‘income’ is calculated as 4 to 6 per cent of the unitary value.
The good news about taxation in Luxembourg, is that fortuitous receipts such as lottery or gambling winnings, gifts, rewards and prizes are exempt from tax.
This article is an extract from Living and Working in Holland, Belgium & Luxembourg.
