We bring you the second part in a series on tax in Luxembourg. Let Laura Foulds answer what might be obvious for some but less straight forward for others. If you missed last week she covered the basics and this week, she clarifies three important questions.
1- Who is considered a resident?
Residents maintain a permanent home in Luxembourg or intend to remain in Luxembourg for at least 6 months.
Care should be taken if family remain living outside Luxembourg, a second permanent home is maintained in another country or the individual is considered resident in more than one country as it is possible that treaty provisions override the domestic residency position.
Residents are taxable on their worldwide income.
2- Is a tax return mandatory?
No, many taxpayers will not need to file e.g. single person with salary income of €60,000 and no other income. They can, however, file voluntarily to claim deductions & a tax refund.
There are, however, many conditions that can result in a mandatory filing obligation (Form 100). The main conditions are below but it is important to note that this is not an exhaustive list:
- If your taxable income subject to withholding tax exceeds €100,000 (or €36,000 if you are filing jointly and both spouses are working in Luxembourg or if you have multiple employments).
- If you are registered partners & want to file jointly
- If you are resident and your spouse is non-resident and you want to file jointly
- If you have income not subject to withholding taxes (e.g. self-employed income, foreign income, rental income)
- If you receive directors fees exceeding €1,500, capital gains exceeding €500, other income exceeding €100.
- If you elect for a non-default filing position (see week 6)
- If you have more than one type of income you will typically need to file a tax return.
Where both spouses are working, it is often the case that additional tax will be due when the tax return is filed, so keep some cash aside for that!
3- Joint vs separate filing
As a default position, resident married couples file jointly (including in the year of marriage) and they also report income of dependent children under 18. From 1 January 2018, it is possible for married couples to elect for the calculation of their taxes on a joint, individual or hybrid basis. A case by case analysis is required to determine if this would result in a lower tax rate.
Taxpayers in registered partnerships are treated as single taxpayers but can elect to file jointly if they meet certain conditions – this election is requested each year but analysis is required to determine benefit.
Where one spouse is not resident in Luxembourg joint filing can only be obtained by election as long as certain conditions are met.