Classification of taxes

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Tax is a compulsory, financial levy on the income, resources or goods of natural or legal persons. It is used to finance public expenditure.

There are several types and classes of taxation, for which the rates can vary depending on the legal form of the company.

Who is concerned

Any natural or legal persons pursuing a commercial activity in Luxembourg are liable for tax.

Prerequisites

A tax is validly constituted when the four following elements are present:

  • taxable item: this is the item on which the tax is paid (income, capital, good or service). We also refer to this as the tax base;
  • taxable person: this is the person liable for tax, meaning the person who must assume the fiscal cost;
  • taxable event: this is the event triggering a tax charge (e.g. the possession of wealth on a certain date, the sale of a building...);
  • due date: this is the time when the taxable person must pay the tax.

How to proceed

Types of taxes

In Luxembourg, the different types of taxes and duties are:

  • personal income tax for natural persons, sole proprietorships and partnerships;
  • corporate income tax for capital companies, cooperative companies (société coopérative - SC), mutual insurance companies, public service institutions and other foundations, non-profit associations, private-sector collective undertakings, special purpose funds and estates in abeyance, etc.;
  • communal business tax for all commercial businesses, depending on the commune in which the company is established;
  • property tax relating to land ownership due from the farmer, merchant or a commercial enterprise for property used for agricultural or commercial activity;
  • net wealth tax for companies subject to income tax;
  • registration fees, pertaining to:
  • value-added tax (VAT), which taxes annual turnover and final consumption;
  • stamp duty relating to applications for business permits;
  • excise duties on consumer goods such as fuel and alcohol.

Classification

Taxes can be classified in different ways:

Direct and indirect taxes

Direct tax

Indirect tax

Borne directly by the taxpayer: the person who pays the tax or duty is also the taxable person.

Levied periodically following submission of a tax return by the company (e.g. income tax).

Paid by a taxpayer who does not directly bear the tax expense, the tax is levied on the consumer and paid by the vendor.

Levied regularly following the occurrence of a particular event and without the need for a tax notice (e.g. VAT collected by the company from the consumer who bears the tax expense and transferred to the state by the company).
Impersonal and personal taxes

Impersonal tax

Personal tax 

Taxes an economic item without considering the personal circumstances of the taxpayer (e.g. property tax, communal business tax, VAT).

Taxes an economic amount adjusted to take the personal circumstances of the taxpayer into consideration (e.g. income tax).
Distributive and pro-rata taxes

Distributive tax

Pro-rata tax

the rate of taxation is not known in advance but determined according to the sum to be collected by the public authorities. This sum is then shared among the various taxpayers (e.g. local taxes).

the rate of taxation is determined but the sum to be paid is not known in advance (e.g. communal business tax).
Proportional and progressive taxes

Proportional tax

Progressive tax

Is obtained using a fixed rate (e.g. VAT).

Is determined using a scale which enables the tax to be increased in line with the taxable item (e.g. income tax).
Analytic and synthetic taxes

Analytic tax

Synthetic tax

This type of tax only takes one item into account (e.g. property tax).

This tax takes into account a group of items to which an overall tax is applied (e.g. income tax, net wealth tax, communal business tax).
Local and national taxes

Local (or communal) tax

National (or State) tax

Tax determined by the commune where established.

The tax is allocated to the national budget and set at identical rates nationwide.

 

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