Regardless of whether they are resident or non-resident taxpayers, an employee is considered as an individual who receives income from their employer in exchange for salaried work.
Remuneration for work carried out in Luxembourg is generally subject to withholding tax at source in Luxembourg, deducted by the employer on the basis of the tax card submitted by the employee (whether resident or non-resident).
Taxes withheld at source are treated as an advance payment.
People carrying out an activity in Luxembourg, whether in a temporary or permanent position, making themselves available to an employer in return for pay, may be subject to tax on their wages in Luxembourg.
The following, in particular, are affected:
Salary and other benefits paid by an employer to an employee in the context of the employment relationship, whether as main compensation or additional compensation, are considered as income from paid employment.
All property and benefits in cash and in kind received by the taxpayer in the context of their paid employment form part of their income.
The employer is responsible for paying all salaries and salary-related supplements, as well as for the corresponding tax treatment thereof.
The list below shows some of the benefits and supplements to employees' ordinary gross salary:
When the employment contract is terminated during the year, or at the start of the following year, the employer gives the employee a salary certificate for the corresponding year, stating the income (salary in cash or benefits in kind) derived from their paid employment.
Where applicable, a copy of that salary certificate needs to be submitted with the income tax return or annual adjustment application.
In terms of direct tax, resident taxpayers are subject to income tax on their total income (non-exempt income earned in Luxembourg and exempt income from abroad). Non-resident taxpayers, who live outside of Luxembourg, are only subject to income tax on their non-exempt income from Luxembourg.
Provided they meet the conditions to be treated as resident taxpayers, non-resident taxpayers who are treated as residents for tax purposes are entitled to the same legal provisions, deductions, tax allowances on extraordinary expenses and allowances for sustainable mobility as resident taxpayers. However, all income from Luxembourg and foreign sources must be taken into account in order to determine the tax rate which will apply to them in Luxembourg.
By virtue of international agreements for the avoidance of double taxation, employees' salaries are generally taxable in the State where they exercise their profession, as non-exempt domestic income.
When their professional activity takes place physically in Luxembourg and in a third country, the income is generally taxable both in Luxembourg and in that third country. Where applicable, the income is prorated (split).
To regularise their tax situation, some taxpayers are required to file an income tax return (known as taxation by assessment). Other taxpayers may file a tax return or request an annual adjustment.
Any taxpayer who receives a formal request from the Luxembourg Inland Revenue to report their income must comply with this request.
The withholding tax deducted by the employer will then be credited against the amount of tax due after such regularisation.
Décompte annuel (personnes physiques résidentes salariées ou pensionnées non soumises à une imposition par voie d'assiette - 163 R)
Lohnsteuerjahresausgleich (ansässige steuerpflichtige Arbeitnehmer und Rentner die nicht einer Besteuerung durch Veranlagung unterliegen - 163 R)
Décompte annuel (personnes physiques non résidentes salariées ou pensionnées non soumises à une imposition par voie d'assiette - 163 NR)
Lohnsteuerjahresausgleich für das Jahr 2021 (nichtansässige steuerpflichtige Arbeitnehmer und Rentner die nicht einer Besteuerung durch Veranlagung unterliegen - 163 NR)