Adjustment of withholding tax on salaries by annual adjustment as a non-resident

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Non-resident employee or pensioner taxpayers who do not satisfy the conditions for filing an income tax return—not being subject to tax on an assessment basis—may submit a request for an adjustment of the tax withholding on their salary by way of an annual adjustment in order to obtain a refund of any excess taxes withheld at source.

The purpose of the annual adjustment (form 163 NR F) is to determine the tax applicable to the taxpayer's annual taxable income. When the determined tax is less than the total tax withheld by the employer or pension fund, a refund is given by the tax authorities.

This procedure, available by request, cannot in principle result in any additional tax liability for the taxpayer. The request for an annual adjustment is thus only useful to taxpayers who have good reason to expect a refund of at-source withholdings on their salary (withholdings collected by the employer) or pension (withholdings collected by the pension fund).

Who is concerned

Any employee or pensioner that has had tax withheld from their salary or pension and who does not satisfy the conditions for filing an income tax return may apply for an adjustment of tax withholdings based on an annual adjustment (form 163 NR F).

Non-resident taxpayers are subject to Luxembourgish income tax only on their domestic income. If they request an adjustment of tax withholdings, in certain cases they must indicate their foreign income.

This is the case for:

  • non-resident taxpayers who have worked continuously in Luxembourg for fewer than 9 months in a given year. For these taxpayers, the foreign income is included in a fictitious taxable base with the domestic income, to determine the global tax rate applicable to the income subject to the annual adjustment.
Specific provisions allow for a tax adjustment in favour of non-resident employees whose gross compensation in Luxembourg is greater than 75 % of their total annual earned income.
  • married non-resident taxpayers in tax class 1A must indicate their foreign income. If more than 50 % of their household's earned income has its origin in Luxembourg, they will be listed in tax class 2.

Withholding tax relief on wages, salaries or pensions by annual adjustment is generally requested:

  • when the employee or pensioner taxpayer claims certain tax-deductible expenses (such as extraordinary expenses) which they did not declare on their tax card;
  • when no tax deductions have been granted for dependent children, in the form of:
    • a tax allowance for children paid by the Children’s Future Fund (Caisse pour l’avenir des enfants - CAE) or granted in the form of financial aid for higher education;
    • aid to volunteer workers paid by the National Youth Service (Service national de la Jeunesse- SNJ);
    • tax relief.

Note: applicants for the single-parent tax credit (crédit d'impôt monoparental - CIM) must file a tax return using the 'form 100' form instead of the annual adjustment application form.

Deadlines

The request for an annual adjustment must be filed with the Non-residents RTS tax office (bureau retenue d'impôt sur les traitements et salaires - RTS) by no later than 31 December of the year following the tax year.

How to proceed

In order to request an adjustment of tax withholdings at source, a non-resident taxpayer may submit an annual adjustment form (form 163 NR F). There are only a limited number of deductible expenses that a non-resident taxpayer may claim by way of an annual adjustment.

Non-resident taxpayers may, under certain conditions, claim special expenses, interest paid on a mortgage, extraordinary expenses or the single-parent tax credit by filing a tax return (taxation on an assessment basis) and opting to be treated as a resident for tax purposes.

The form 163 NR F (annual adjustment) form consists of 4 pages:

  • pages 1 to 2 cover the personal details of the taxpayer and their family, the request for relief, the deduction for children who do not form part of the taxpayer's household, and the child allowance. The taxpayer must also indicate periods of work or inactivity (retirement, unemployment, studies, etc.) as well as the names of their various employers and pension funds;
  • page 3 concerns travel expenses and other business-related expenses, legally mandatory contributions paid to a Luxembourgish or foreign social security institution, and personal contributions to a supplementary pension scheme (established in conformity with the act of 8 June 1999);
  • page 4 is completed when the taxpayer applies to be listed in tax class 2.

The adjustment request may also be submitted directly online via MyGuichet.lu, by filling out an interactive questionnaire.

The non-resident taxpayer must attach their Luxembourgish (or foreign) salary statements to the annual adjustment request.

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