Income Tax liability

Who is liable to pay income taxes in Luxembourg?

Your liability for income taxes (and any other sort of taxes, for that matter) depends on where you're domiciled, which is usually the country you regard as your permanent home and where you live most of the year.

Income Tax liability

A foreigner working in Luxembourg who has taken up residence there is usually considered to be domiciled there. A person can be resident in more than one country at any given time, but can only be domiciled for tax purposes in one country. If you're entered in the local population register, you’re considered domiciled there for tax purposes unless you qualify for some form of special treatment.

The tax system in Luxembourg distinguishes between resident and non-resident taxpayers when it comes to determining what income is subject to taxation. As a rule, residents are taxed on their world-wide income, while non-residents are taxed only on income originating in the local country. There are, however, a number of situations where resident foreigners may be granted a special status, allowing them to be taxed as non-residents on certain categories of income.

There are double taxation treaties between Luxembourg and 30 or more countries, designed to ensure that income that has already been taxed in one country isn't taxed again in another. (Most tax treaties also call for the exchange of tax return information between the two countries' tax authorities, so they can check that you’re being taxed somewhere on everything you earn.)

If you're in doubt about your tax liability in your home country, contact your nearest embassy or consulate in your adopted country. Americans living in Luxembourg (or anywhere outside the USA) should be aware that, although US tax treaties allow for exemption of various sorts of earned income and credit you for income taxes paid abroad, you must file a US income tax return even if all your income is exempt from taxation. (Note that renouncing your citizenship is not only extremely difficult but can also result in your being barred from returning to the US even as a visitor.) US citizens can obtain information on tax filing requirements from an American embassy or consulate or via the Internet at the IRS website (www.irs.gov ). British nationals should consult the Inland Revenue website (www.inlandrevenue.gov.uk ) for further information.

In Luxembourg, tax domicile ( domicile fiscale/Wohnsitzung) is determined by your ‘place of usual abode' ( lieu de séjour habituel/gewöhnlicher Aufenthalt), and generally you will be taxed as a resident if you’re physically present in Luxembourg for at least six months or 183 days during the tax year, or if your family is living there while you travel for your work.

Non-residents are denied most personal allowances, many deductions and some other tax-reduction opportunities, but in any case most of your earned income is taxed in your country of residence, thanks to numerous agreements regarding 'border hoppers' ( Grenzenspringer). If you’re living in a neighbouring country and working in Luxembourg, it’s usually possible to have your Luxembourg employer withhold income tax and social security payments and remit them to your country of residence.

A foreigner working in Luxembourg who has taken up residence there is usually considered to be domiciled there. A person can be resident in more than one country at any given time, but can only be domiciled for tax purposes in one country. If you're entered in the local population register, you’re considered domiciled there for tax purposes unless you qualify for some form of special treatment.

The tax system in Luxembourg distinguishes between resident and non-resident taxpayers when it comes to determining what income is subject to taxation. As a rule, residents are taxed on their world-wide income, while non-residents are taxed only on income originating in the local country. There are, however, a number of situations where resident foreigners may be granted a special status, allowing them to be taxed as non-residents on certain categories of income.

There are double taxation treaties between Luxembourg and 30 or more countries, designed to ensure that income that has already been taxed in one country isn't taxed again in another. (Most tax treaties also call for the exchange of tax return information between the two countries' tax authorities, so they can check that you’re being taxed somewhere on everything you earn.)

If you're in doubt about your tax liability in your home country, contact your nearest embassy or consulate in your adopted country. Americans living in Luxembourg (or anywhere outside the USA) should be aware that, although US tax treaties allow for exemption of various sorts of earned income and credit you for income taxes paid abroad, you must file a US income tax return even if all your income is exempt from taxation. (Note that renouncing your citizenship is not only extremely difficult but can also result in your being barred from returning to the US even as a visitor.) US citizens can obtain information on tax filing requirements from an American embassy or consulate or via the Internet at the IRS website (www.irs.gov ). British nationals should consult the Inland Revenue website (www.inlandrevenue.gov.uk ) for further information.

In Luxembourg, tax domicile ( domicile fiscale/Wohnsitzung) is determined by your ‘place of usual abode' ( lieu de séjour habituel/gewöhnlicher Aufenthalt), and generally you will be taxed as a resident if you’re physically present in Luxembourg for at least six months or 183 days during the tax year, or if your family is living there while you travel for your work.

Non-residents are denied most personal allowances, many deductions and some other tax-reduction opportunities, but in any case most of your earned income is taxed in your country of residence, thanks to numerous agreements regarding 'border hoppers' ( Grenzenspringer). If you’re living in a neighbouring country and working in Luxembourg, it’s usually possible to have your Luxembourg employer withhold income tax and social security payments and remit them to your country of residence.

This article is an extract from Living and Working in Holland, Belgium & Luxembourg.

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