Luxembourg Tax Guide 2025: English Translation Companion

Who Must File a Luxembourg Tax Return in 2026 for 2025 Income?

Luxembourg does not require every employee to file a full annual return. Filing depends on thresholds, household structure, and whether you need to claim deductions or a different filing regime.

When a Full Annual Return (Model 100) Is Mandatory

• Your household has more than EUR 100,000 of Luxembourg taxable income.
• A resident household has multiple Luxembourg taxable income streams and the combined amount exceeds EUR 36,000 for tax classes 1 or 2, or EUR 30,000 for class 1a.
• A non-resident household or single non-resident has multiple Luxembourg taxable incomes and the combined amount exceeds EUR 36,000 for classes 1 or 2, or EUR 30,000 for class 1a.
• A married non-resident opted for fiscal assimilation and is taxed through an average withholding rate shown on the tax card.
• You have more than EUR 600 per year of other income without Luxembourg withholding tax, such as rents or miscellaneous income.
• You have more than EUR 1,500 of income subject to withholding on capital-type income, such as certain movable capital income or directors' fees.

When Filing Is Voluntary but Often Worthwhile

• Mortgage or home-loan interest on your principal residence
• Special expenses such as eligible insurance premiums or pension products
• Extraordinary charges such as childcare or domestic help
• Employment-related expenses above the automatic flat-rate
• Negative rental income or situations where Luxembourg withholding was too high

Decision Flow: Do You Need Model 100?

How to File: MyGuichet, Paper, or PDF Submission

The guide recognises three practical submission paths for the annual Luxembourg return. The digital route is clearly preferred where available, especially for quicker processing.

Supporting Documents You Should Attach

• Annual salary certificates
• Annual pension or annuity certificates
• Certificates of withholding and granted tax credits
• Certificates for foreign income if the household has non-Luxembourg income
• Bank interest statements and loan-interest summaries

Model 100 vs. Document 163: Which Filing Path Should You Use?

The PDF distinguishes between the full annual income tax return and the annual withholding adjustment. They are not interchangeable, and choosing the wrong one can mean losing deductions.

What Document 163 Is For

The annual adjustment (Document 163R for residents and 163NR for non-residents) is used to regularise excessive withholding tax for employees or pensioners who are not filing, or do not need to file, a full Model 100 return.

Main Tax Card, Additional Tax Card, and Withholding Rate

• The main tax card uses the taxpayer's class or average withholding rate.
• An additional tax card applies when income comes from multiple employers or income sources.
• For additional cards, the guide gives the flat rates as 33% for class 1, 21% for class 1a, and 15% for class 2.

When Non-Resident Married Taxpayers Should Request a Rate Change

• Marriage, divorce, or widowhood
• A large salary increase or decrease
• One spouse stops Luxembourg work and moves income abroad
• Working-time changes such as full-time to part-time
• New deductible products or major deductible expenses

Tax Classes 1, 1a, and 2: Which One Are You In?

Your tax class determines how much you pay. Most people know they're in a class, but few understand why — or that they might be able to change it.

The Three Tax Classes

Luxembourg has three tax classes, each with its own withholding scale. Class 2 is the most favourable (income is effectively split), Class 1a was significantly improved for 2025, and Class 1 is the default baseline.

Tax Class Assignment — Residents

Tax Class Assignment — Non-Residents

How Much Difference Does the Class Make?

The 2025 reform made Class 1a significantly more favourable. Here's the tax comparison at various income levels:

Secondary Tax Card Rates

If you have multiple employers in Luxembourg, your secondary employer applies a flat withholding rate:

Tax Credits: Direct Reductions Most People Don't Maximise

Unlike deductions (which reduce taxable income), tax credits directly reduce the tax you owe — euro for euro. Here are the four you should know.

1. Employee Tax Credit (CIS) — Up to EUR 600/Year

Every employee and pensioner receives a tax credit that phases in, plateaus, then phases out:

2. CO2 Tax Credit (CI-CO2) — Up to EUR 216/Year

3. Single-Parent Tax Credit (CIM) — Up to EUR 3,504/Year

This is a significant credit for single parents (Class 1a). The 2025 amounts are substantially higher than previous years:

4. Minimum Wage Tax Credit (CISSM) — Up to EUR 81/Month

Non-Residents: The Fiscal Assimilation Rules You Must Understand

As a cross-border worker, your ability to deduct special expenses and extraordinary charges — or even file a return at all — depends entirely on whether you qualify as "assimilated" to a resident.

What Is Fiscal Assimilation?

Non-residents are normally taxed only on Luxembourg-source income, with no access to deductions (no special expenses, no extraordinary charges, no monoparental credit). Fiscal assimilation (assimilation fiscale) allows eligible non-residents to be treated like residents — unlocking all deductions and collective taxation in Class 2.

Three Pathways to Assimilation

You must meet at least one of these conditions (Art. 157ter LIR):

1. 90% Rule: At least 90% of your own professional income is taxable in Luxembourg
2. EUR 13,000 Threshold: Your non-Luxembourg income is below EUR 13,000 (this income is then excluded from the 90% calculation)
3. Belgian Residents Only — 50% Rule: More than 50% of your household's total professional income is taxable in Luxembourg

Practical Examples

How to Request Assimilation

• Married non-residents: Submit document 166 F via MyGuichet.lu (deadline: 31 December 2026 for 2025 income)
• Non-married non-residents: Request via your annual declaration (Modèle 100), checking boxes 322/323/324

Telework and the 90% Rule

Days worked outside Luxembourg count against your 90% threshold. However, the first 50 days of telework are excluded from the calculation (tolerance). Beyond 50 days, each additional day reduces your Luxembourg income share and may cause you to lose assimilation.

Deductions Roadmap: What the Guide Says You Can Reduce in 2025

The guide spends a large part of the Luxembourg section on deductions. This translated roadmap gathers the main categories so you can review them before filing.

Special Expenses the Guide Highlights

• Alimony payments
• Debit interest on eligible loans
• Insurance premiums and contributions
• Single-premium mortgage balance insurance
• Retirement savings plans / prévoyance-vieillesse
• Building-society contributions
• Mandatory and personal social contributions
• Donations and charitable gifts

Mortgage Interest and Home Loan Costs: What the Guide Tells You to Deduct

The guide confirms that principal-residence interest and several financing-related costs can be deductible, but the exact treatment depends on whether the property was already habitable or under construction or major renovation.

Main Rule

Mortgage interest on your principal residence can be deducted, with the limits depending on when the property became available and how many people are in the tax household.

When Interest May Be Fully Deductible During Works

If the property was acquired in such a degraded condition that it was not directly habitable, the guide says interest may be deductible without limit during the works period. The examples given include lack of heating, sanitary facilities, or a kitchen. The guide advises keeping strong evidence such as photos, expert or architect reports, and invoices.

Other Financing Costs Mentioned by the Guide

• Opening commission
• Mortgage deed costs
• Loan-processing fees
• Guarantee-related costs linked to the loan opening
• Notarial costs linked to opening the mortgage credit itself

What the Guide Explicitly Excludes

• Notary costs for the real-estate acquisition itself
• Guarantee or security deposits that are refundable at the end of the loan

Rental Income: How Luxembourg Taxes Your Property

Whether your rental property is in Luxembourg or abroad, the tax treatment can generate a substantial loss on paper — legally reducing your overall tax bill.

Luxembourg vs. Foreign Property

Two Methods for Obtainment Costs

Depreciation — The Big Deduction

Depreciation (amortissement) is often the largest single deduction for property owners. The rates depend on when the building was completed:

* The 1% special allowance applies only when the depreciable base is under EUR 1,000,000 and only to individuals (not companies).

Calculating the Depreciable Base

You depreciate the building only, not the land. If the purchase deed doesn't separate land and building values, the standard split is 20% land / 80% building.

Full Worked Example: Creating a Tax Loss

This EUR 17,814 loss reduces your overall taxable income. If your marginal tax rate is 42%, that's a tax saving of approximately EUR 7,482.

PACS & Marriage: Collective vs. Individual Taxation

Married or PACS'd? You have a choice between collective and individual taxation. In 2025, the "right" answer changed for many couples due to the Class 1a reform.

Three Options for Married/PACS'd Couples

The Extra-Professional Deduction

Collectively taxed couples where both earn professional income receive an automatic deduction of EUR 4,500/year (EUR 375/month). This is part of the spousal allowance calculation:

When Collective Wins

Rule: The larger the gap between Luxembourg and foreign income (with Luxembourg higher), the more attractive collective taxation.

When Individual Wins

When Foreign Income Is Much Higher

Rule: When foreign income substantially exceeds Luxembourg income, individual pure taxation is typically more favourable because collective taxation inflates the average rate applied to Luxembourg income.

PACS Timing Trap

A PACS must exist from January 1 through December 31 of the fiscal year for collective taxation to be available. If you entered a PACS on 15 January 2024, the first year you can file collectively is 2025 (declared in 2026).

Translated Form Diagrams: Which Boxes Matter and How to Fill Them

This section recreates the practical form logic from the PDF in English. It is not a facsimile of the official forms, but a filing-oriented map of the parts the guide draws attention to.

1. Married Non-Resident Choice Boxes on Model 100

2. Rental Form 190/210 F Field Map

3. Form 166 F: Mid-Year Tax Status or Rate Change

4. Telework Reporting on Model 100

Telework Beyond 34 Days: The Hidden Tax Trap for Cross-Border Workers

Working from home sounds great until it triggers taxation in your country of residence, inflates your rate, and costs you thousands.

The 34-Day Tolerance Threshold

For 2025, employees residing in France, Belgium, or Germany who telework or travel for business outside Luxembourg benefit from a tolerance threshold:

What Happens When You Exceed 34 Days

1. Luxembourg tax decreases (fewer days taxable there)
2. Your residence country taxes the telework portion
3. You may lose fiscal assimilation (if Luxembourg income drops below 90%)
4. Losing assimilation means Class 1 instead of Class 2 and no deductions

Impact by Country of Residence

Worked Example: The Belgian Trap

The Assimilation Cascade

For married couples where one spouse earns significant foreign income, excessive telework can trigger a devastating chain reaction:

1. Telework days reduce your Luxembourg income percentage
2. You fall below the 90% assimilation threshold
3. You lose Class 2, drop to Class 1
4. You lose all deductions (special expenses, extraordinary charges, mortgage interest)
5. Your tax can jump by EUR 7,000–13,000+

Social Security Threshold: 50%

Separate from the tax threshold: if you work more than 50% of your time outside Luxembourg (approximately 109+ days), you lose Luxembourg social security affiliation entirely. This means higher pension contributions abroad and a potentially lower future pension.

FAQ for 2026 Filing: Practical Answers Translated from the Guide

The end of the PDF contains practical answers that are especially useful once you have already prepared the return and are dealing with deadlines, corrections, or confusing results.

Can I Stop Filing If I Once Filed Voluntarily?

Yes. The guide says that filing voluntarily one year does not create a permanent legal obligation to file every later year. If the tax office keeps inviting you because you are on its list of regular filers, you can notify the administration and ask to be removed from that non-mandatory filing workflow.

Is Telework Double Taxation?

No. The guide is explicit that this is not double taxation. Luxembourg taxes the Luxembourg-taxable part, and the country of residence taxes the telework part that is exempt in Luxembourg. Both countries may use worldwide income for rate determination, but they do not tax the same slice twice.

How Do Childcare or Domestic Help Costs Get Compared?

The FAQ repeats the logic that the administration first compares the real deductible amount above the normal burden threshold with the annual forfait, and then keeps the more favourable result if the conditions are met.

What If I Made a Mistake on the Return or the Tax Assessment?

• If the return has not yet been processed, contact the competent tax office employee quickly by phone or email and provide the evidence.
• If the issued tax assessment is wrong, first contact the tax office.
• If unresolved, submit a formal complaint by registered letter to the Director of the ACD.
• The guide states the appeal deadline as 3 months from the date of issue of the tax assessment.

Why Am I Still Receiving Quarterly Advance Tax Requests?

• Yes if you are a married resident.
• Yes if you are unmarried and have multiple Luxembourg income sources.
• Yes if you are a married non-resident still taxed under the common-law class 1 setup with personal tax cards.
• Usually no if you are a married non-resident taxed through the average-rate assimilation system rather than the old additional-card system.