Opting for a tax treatment equivalent to that of a resident (tax assimilation)
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Non-resident taxpayers who earn most of their income in Luxembourg can opt to be treated as resident taxpayers.
Provided they meet the conditions to be treated as resident taxpayers, they may, on request, benefit from the same deductions, allowances and credits as resident taxpayers.
Who is concerned
This applies to all non-resident taxpayers who have their tax residence or usual place of residence abroad while having a certain income (professional and/or from property) that is taxable in Luxembourg.
This can be the case for:
- a cross-border worker who commutes daily between their home abroad and their workplace in Luxembourg; or
- an employee who has a place (pied-à-terre) in Luxembourg during the week and who returns home to their family abroad every weekend and holiday.
Prerequisites
The taxable income in Luxembourg must exceed a certain threshold of the non-resident's worldwide income (both domestic - from Luxembourg source - and foreign).
At least 90% of the income must be taxable in Luxembourg. This threshold is calculated on the basis of the taxpayer's total income (both professional and non-professional) earned during the tax year.
The 90% threshold may be calculated by taking into account the individual circumstances of each spouse or partner.
Taxpayers residing in Belgium can request to be treated as resident taxpayers if either 50% of the professional income of the household is taxable in Luxembourg or if they fulfil the 90% condition.
Since the 2018 tax year, non-resident taxpayers whose net cumulated income not subject to Luxembourg income tax is below EUR 13,000 can also opt to be treated as resident taxpayers.
Offsetting of the first 50 days of work performed outside Luxembourg
To calculate the 90% threshold, income from employment taxed in another country under a double taxation agreement is considered taxable in Luxembourg.
However, this only applies to remuneration exempt from tax for a maximum of 50 days worked. Beyond 50 days, days worked outside Luxembourg will not be considered taxable income in Luxembourg, but as taxable income abroad.
For example: for a taxpayer resident in France who has worked for 80 days in their country of residence, only the first 50 days will be treated as taxable income in Luxembourg, while the remaining 30 days will be considered as foreign income.
This rule applies only to the determination of the 90% threshold and does not affect the right of taxation of individual countries or taxation when filing income tax returns.
Deadlines
The income tax return (model 100) must be submitted to the relevant tax office by 31 December of the year following the tax year, respecting the specific deadlines set out in the notices issued by the various departments of the Luxembourg Inland Revenue (Administration des Contributions Directes - ACD).
How to proceed
Application to be treated as a resident for tax purposes
Non-resident taxpayers can apply to be treated as a resident taxpayer using the Luxembourg income tax return (form 100).
Consequences of being treated as a resident for tax purposes
Non-resident taxpayers who opt to be treated as a resident taxpayer are required to declare all of their worldwide income (foreign and domestic).
Foreign income is, in principle, excluded from the tax base in Luxembourg, in accordance with double taxation treaties. However, it is added to the taxable income in Luxembourg for the purpose of determining the tax rate.
It should be noted that foreign income (positive or negative) is determined in accordance with Luxembourg tax provisions.
Tax deductions
By opting for tax assimilation, non-resident taxpayers can claim all the tax deductions, allowances and tax credits granted to resident taxpayers.
A single taxpayer with a child in their household who benefits from a tax reduction for children can also claim the single-parent tax credit (crédit d'impôt monoparental - CIM).
Calculation method
When a non-resident is treated as a resident for tax purposes, the Luxembourg Inland Revenue makes 2 calculations:
- first calculation: determination of the tax rate: the tax authorities determine the rate by adding the Luxembourg and foreign income together and then subtracting deductible expenses;
- second calculation: the administration then applies the previously calculated rate to the taxable domestic income in Luxembourg only.
In practice, opting to be treated as a resident for tax purposes will be worthwhile only if the non-resident taxpayer or their spouse or partner (having opted for joint taxation) has no or only very little income outside of Luxembourg during the tax year in question.
This optional scheme is a fictitious situation that does not affect the taxpayer's residence or the taxation of their income under double taxation agreements between countries. This hypothetical scenario only affects the calculation of what is owed in Luxembourg (i.e. the overall tax rate).
The taxation can be simulated using an online service.
Practical examples
Example 1
Mr. and Mrs. XY are married and reside in Germany. They have the following income:
- Mr. X works in Luxembourg and has EUR 40,000 of net wage income (gross salary - exempt salary - business expenses - travel expenses = EUR 40,000);
- Mr. X also works in Germany and receives EUR 12,500 in net income from a salaried activity;
- Mrs. Y does not exercise any professional activity;
- spouses X and Y have no other income.
Determining the percentage of taxable income in Luxembourg in relation the worldwide income:
(Total non-exempt net income x 100) / Total non-exempt and exempt net income = (40,000 x 100) / (40,000 + 12,500) = 76.19%
Although his taxable income in Luxembourg represents less than 90% of his worldwide income, Mr X can opt for tax assimilation, as the income that is not taxable in Luxembourg is less than EUR 13,000.
Example 2
Mr. and Mrs. WZ are married without children and they reside in France in a residence that they own. The household's income is as follows:
- Mr. W receives a net income from a salaried activity in Luxembourg of EUR 40,000;
- Mrs. Z receives an income of EUR 18,000 from a self-employed activity in France that is tax-exempt in Luxembourg.
In this example, the spouses' only taxable domestic income in Luxembourg is Mr. W's salary in Luxembourg (EUR 40,000).
Mr. W is taxable in Luxembourg for 100% on his worldwide income:
(Total non-exempt net income x 100) / Total non-exempt and exempt net income = (40,000 x 100) / 40,000 = 100%
He can therefore apply to be treated as a resident taxpayer.
Who to contact
Luxembourg Inland Revenue (ACD) Contact Centre
- Address:
- 33, rue de Gasperich L-5826 Hesperange Luxembourg
- Phone:
-
(+352) 247 53 000
'Electronic assistant’ helpline available Monday to Friday from 7:45 to 17:00
Related procedures and links
Procedures
Links
Further information
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Calculatrice fiscale
sur le site du ministère des Finances
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Assimilation fiscale des contribuables non résidents aux contribuables résidents
sur le site de l’Administration des contributions directes (ACD)
Legal references
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Loi modifiée du 4 décembre 1967
concernant l’impôt sur le revenu
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Loi du 26 juillet 2010
modifiant les articles 157, 157bis et 157ter de la loi modifiée du 4 décembre 1967 concernant l'impôt sur le revenu
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Circulaire LIR n°157ter/1 du 21 mars 2019
Assimilation du contribuable non résident au contribuable résident
