This GMS Flash Alert reports on various key measures affecting individuals in recently-approved tax legislation in Luxembourg.
Recently approved legislation in Luxembourg will alter the tax treatment of married couples and registered domestic partners. In addition, from 2018, how married nonresident taxpayers are taxed will undergo a change. The global tax schedule has been revised, with new income brackets and some new rates.
Following the announcement of the tax reform in early 2016 and the submission of the draft legislation in August, the Luxembourg Parliament voted on 14 December in favor of the reform by a slim majority.1 The new tax legislation2 entered into force on 1 January 2017 (with certain exceptions, explained below).
The new measures represent important changes to Luxembourg’s individual tax system affecting all local employees, cross-border workers, and international assignees alike. In particular, certain nonresident taxpayers (e.g., cross-border workers) could be disadvantaged due to higher taxation from the change to their tax class status.
Global mobility tax professionals, program managers, and international assignees should be aware that determining whether it would be beneficial for married couples/registered partners to file separate tax returns or joint tax returns could be complex, and careful consideration needs to be given to the options available.
We highlight the key measures below and further clarify certain changes to Luxembourg’s tax law which will be effective from 1 January 2018.
Starting in 2018, married couples and registered partners will have the option to be taxed individually. To make the election, married couples must file a joint non-revocable application by 31 December of the tax year preceding the tax year concerned (i.e., the application for 2018 should be filed before 31 December 2017). Registered partners should file the non-revocable application by 31 March of the tax year following the tax year concerned (i.e., the application for 2018 should be filed before 31 March 2019). This election can be made on an annual basis. Further details can be found in the newsletter published by the KPMG International member firm in Luxembourg.
The taxation of married nonresident taxpayers will be substantially amended as from 1 January 2018. Nonresident couples will be taxed as single taxpayers in tax class 1 during the tax year, unless the spouses are taxable in Luxembourg on at least 90 percent of their yearly worldwide income. In that case they can opt to be jointly taxed (in tax class 2) at the tax rate applicable to their household’s worldwide income. In certain situations it is also possible and potentially beneficial to opt for joint taxation if only one of the partners is taxable in Luxembourg on 90 percent or more of his or her yearly worldwide income. Please refer to the recent KPMG Luxembourg newsletter for further details.
The global tax schedule has been revised. Additional income brackets and tax rates are now included in the tax tables. In addition, a marginal tax rate of 41 percent has been introduced on annual income of €150,000 or more. A 42-percent rate will apply for singles on annual income of €200,004 or more (for taxpayers in tax class 1, €400,008 for couples filing jointly in tax class 2). The tax rates for 2017 can be found in the aforementioned KPMG Luxembourg newsletter.
Uncertainty remains with respect to how the changes will be implemented by the tax authorities.
We are closely following the developments of the tax reform, and further details will be provided in future GMS Flash Alerts as additional information becomes available.
The information contained in this newsletter was submitted by the KPMG International member firm in Luxembourg.
© 2020 KPMG Luxembourg S.à r.l, a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.