Luxembourg, a European Union member state known for its robust financial sector and high living standards, operates a sophisticated tax system that affects both residents and non-residents. Located at the heart of Europe between France, Germany, and Belgium, Luxembourg combines EU membership benefits with attractive tax policies, making it a premier destination for international professionals and financial services.

The country's economy, dominated by financial services, investment funds, and banking sectors, has maintained its position as one of the world's wealthiest nations per capita. Luxembourg's tax system balances social welfare funding with maintaining international competitiveness. Recent reforms have focused on enhancing transparency while preserving Luxembourg's attractiveness as a financial center.

The expat community in Luxembourg is substantial, with many professionals drawn to sectors like banking, EU institutions, and international business services. The tax system, while progressive, offers various benefits and exemptions that can significantly impact an expat's financial planning.

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Luxembourg Income Tax

Luxembourg employs a highly progressive income tax system with 23 different brackets. Tax residents face rates ranging from 0% to 42% (as of 2025):

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An additional 7% employment fund surcharge applies to the tax due. Social security contributions are capped and include:

• Pension insurance: 8%
• Health insurance: 3.05%
• Dependency insurance: 1.4%

If you want to have a better understanding of the taxes you should pay on personal income in Luxembourg, you can use the personal tax calculator in the Taxation section of the Luxembourg page.

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Luxembourg Tax on Overseas Income

Luxembourg's treatment of foreign income follows the worldwide income principle:

• Tax Residents: Taxed on worldwide income
• Non-residents: Taxed only on Luxembourg-source income
• Cross-border Workers: Special provisions for those working across borders

The system includes extensive double tax treaties and provisions for cross-border workers.

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Luxembourg Tax on Investments

Investment income in Luxembourg receives specific treatment under tax law:

• Capital Gains: Generally tax-free after 6 months for non-substantial shareholdings
• Dividends: 15% withholding tax, with exemptions available
• Interest Income: 20% withholding tax on resident savings
• Rental Income: Taxed at progressive rates with significant deductions available

The system includes special provisions for investment funds and financial products.

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Luxembourg Corporate Taxation

Corporate taxation in Luxembourg is competitive:

• Corporate Income Tax: 17% standard rate
• Municipal Business Tax: 6.75% (Luxembourg City)
• Net Worth Tax: 0.5% with minimum amounts
• Value Added Tax (VAT): 17% standard rate, reduced rates available

Special regimes exist for investment funds, holding companies, and intellectual property.

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Special Tax Regimes

Luxembourg offers several special tax arrangements beneficial to international business:

Highly Skilled Workers Regime: Tax benefits for qualified immigrants.

Investment Fund Structures: Extensive range of tax-efficient vehicles.

IP Box Regime: Beneficial treatment of intellectual property income.

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Regional Comparison

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Tax Planning for Luxembourg

Effective tax planning in Luxembourg requires attention to several key areas:

Cross-border Considerations: Managing taxation for cross-border workers.

Investment Structure: Utilizing tax-efficient investment vehicles.

Employment Benefits: Optimizing salary packages with tax-efficient benefits.