Tax returns in Luxembourg: do you have to file a return?
Have you just moved to Luxembourg or become a resident recently? Understanding your tax obligations can seem complicated in this new country. Séverine, a tax expert at Neofisc, explains the key points you need to know about filing your income tax return in Luxembourg. From withholding tax to filing deadlines, foreign income, and supporting documents, follow this essential guide to avoid costly mistakes.
Pay-as-you-earn tax: an advance on tax, not an exemption
Luxembourg applies withholding tax on salaries. This means that part of the tax is automatically deducted each month by the employer. However, this measure does not take into account the taxpayer's overall tax situation. "Withholding tax is always temporary, " Séverine reminds us. In other words, if you receive other types of income (rent, dividends, bank interest), or if your personal situation changes (change of job, parental leave, sick leave, etc.), an annual tax return is often essential.
Who has to file a tax return in Luxembourg?
Contrary to what one might think, annual tax returns are not systematically mandatory for all residents. But in practice, the majority of taxpayers are required to file a return, particularly when:
- you receive income other than salary;
- you are married, in a civil partnership, or have dependent children;
- you have deductible expenses or charges (childcare costs, contributions, loan interest, etc.);
- your income varies significantly throughout the year (bonuses, periods of unemployment, leave, etc.).
Filing a tax return also allows you to regularize your situation and, in some cases, obtain a tax refund.
When is the deadline for filing your tax return?
One of the advantages in Luxembourg is that the deadline is long. You have until December 31 of the following year to submit your tax return to the tax authorities. "We have a whole year to prepare our tax returns, so let's take our time, " recommends Séverine. Please note, however, that your tax return must be received (not simply sent) before this deadline. Late returns may result in penalties, with a minimum amount of €400.
Do you have to declare your foreign income?
Yes, even if this income has already been taxed in another country. This applies in particular to:
- rental income received in France, Belgium, or elsewhere;
- bank interest;
- dividends or stock market gains;
- foreign retirement pensions.
"We include them in a notional base to calculate an average tax rate," explains Séverine. This means that the rate applied to your Luxembourg income will be adjusted according to your worldwide income. There is no double taxation, but Luxembourg ensures tax fairness among residents.
What supporting documents must be provided?
In recent years, the tax authorities no longer systematically require all supporting documents. However, certain documents may be requested, particularly if you are claiming:
- tax deductions (insurance, training, alimony, etc.);
- for your family situation to be taken into account.
"If the authorities request documents and you do not provide them, they will not take the deductions into account," insists Séverine. It is therefore recommended that you prepare and carefully keep all supporting documents.
What are the penalties for non-compliance?
Failure to meet deadlines or pay quarterly advances may result in late payment interest and financial penalties. These advances are required when the authorities consider that your income is too high to be covered by withholding tax alone. "You must always comply with the administration's requests, even if you disagree: pay first, then contest." This is good advice to avoid any conflict with the Luxembourg tax authorities.
Key points to remember
- Withholding tax is an advance payment, but does not always replace the tax return.
- The annual tax return is often mandatory, even if you are an employee.
- December 31 of the following year is the deadline for receiving your tax return.
- All worldwide income must be declared, even income that has already been taxed abroad.
- Keep all your supporting documents available, even if they are not required immediately.
- Penalties can be severe in the event of late filing or omission.
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