Raise your hand if you were one of the lucky recipients of a special tax letter from the government last week?
Not exactly the Golden Ticket but there is help out there by way of Laura Foulds and her company, Analie Tax.
As the first in a series, City Savvy’s tax guru, Laura Foulds brings us all the basic information with regards to filing taxes. This week she gives the bare facts- all you need to know re key dates, deadlines & dreaded penalties!
Calendar year (1 January – 31 December)
Your tax office is allocated primarily according to where you live. There are specific tax offices dealing with non-resident taxpayers and some specific professions (e.g. lawyers in Luxembourg city). A complete list can be found here.
Tax is assessed on a progressive basis with rates from 0% – 42%. An additional surcharge is assessed on the final tax due at a rate of 7% / 9% depending on the level of income arising giving a total maximum tax rate of 45.78% on income over €150,000 (single) / €300,000 (joint).
For resident taxpayers, the default position is that married couples are assessed under Tax Class 2 and single taxpayers under Tax Class 1. In cases of dependent children/divorce/widowed tax class 1a or 2 may apply.
For non-resident taxpayers, the default position is a single filer under Tax Class 1. Joint filing under Tax Class 2 can be made via election. It is only possible in specific circumstances so a case by case analysis is required to determine if such election is possible or beneficial.
Tax withholding/ tax cards
Luxembourg taxes are withheld on income from employment, pensions and some savings and investment income.
For the correct tax withholding to be applied to employment/pension income, each individual must obtain a tax card from the tax authorities. More information on tax cards can be found here.
Tax withholding is an advance payment towards the final tax liability which is, in general, determined via a tax return. Where a tax return is not mandatory, the payroll withholding may be the final liability for the year.
Form 100 : this is the main tax return and it is mandatory to file this in many cases. The official deadline is 31 March following the end of tax year but in practice late filing until 31 December is accepted without penalty. Whilst the tax office will request that the Form 100 is submitted in a lot of cases, it remains the taxpayers responsibility to determine whether they should file a tax return.
Form 163 : this is a simplified, voluntary submission known as the “décompte annuel”. The deadline is 31 December following the end of tax year and late filing is not accepted
Late filing / Penalties
Understanding that many taxpayers will not have complete data to meet the March deadline late filing of the Form 100 is generally accepted without penalty. Some elections/forms must be submitted by 31 March and will not be accepted on a return filed after this date. If Form 100 is filed after 31 December you may lose your right to any tax refund as well as being subject to late filing penalties.
Reminder notices are issued on 1 October and again in November to individuals who have been asked to submit, but have not yet submitted, their tax returns. In practice, returns filed by 31 December do not incur any penalty charges.
Late filing is not routinely penalised for returns submitted by 31 December following the end of the tax year. The tax authorities can, however, issue penalties up to 25% of the final tax and fines of €25,000.
The tax authorities issue an assessment for each Form 100 filed approximately 6-9 months after filing, but it may be longer. Tax assessments are not routinely issued in respect of the Form 163.
The assessment determines any tax owed/refund due and you have 30 days to pay any taxes due. Late payments can attract monthly interest charges.
You can appeal against any assessment but any new assessment must be issued within 3 months so don’t wait too long to raise your initial challenge. If the new assessment is not issued within the 3 month window, you need to appeal to a higher level within the tax administration.
Where tax is owed at the end of the year, it is common for the tax authorities to assess quarterly pre-payments for the following years to avoid large year and payments being due. These are due on 10 March, 10 June, 10 September, 10 December.
Individuals filing jointly are joint debtors of any income tax due unless one of the elections for individual/hybrid taxation are made.