Michiel Roumieux of PwC Luxembourg says that non-residents should consider their personal circumstances before opting for Tax Class 2
Photo: PwC Luxembourg
One of the biggest changes introduced by Luxembourg’s new tax law (No. 7020) is the treatment of non-resident married couples, pensioners and employees.
As of 1 January 2018, married non-residents have, by default, been subject to tax under Tax Class 1. However, under certain conditions they can request the more favourable Tax Class 2.
Michiel Roumieux, tax partner at PwC Luxembourg, described the conditions under which, non-resident married couples can benefit from Tax Class 2.
He told Delano:
“They have to meet one of the following conditions. At least 90% of the global income of one of the partners must be in Luxembourg. If this is not the case, then the couple may still be classed as Tax Class 2, if the total net foreign revenue of that partners is no more than €13,000. In the case of Belgian cross-border workers, at least 50% of the household’s professional income must be taxed in Luxembourg.”
“In the past”, Roumieux continued, “non-residents were only taxed on their Luxembourg income, while Luxembourg residents were taxed on their worldwide income. This led to disparities between residents and non-residents and it was to remove these disparities that the government changed the law such that non-residents would be categorised as Tax Class 1 by default.”
According to Roumieux, “So far, it appears the non-resident married taxpayers have opted to be taxed jointly through payroll, informing the Luxembourg tax authorities with a prevision of their overall income for 2018 by filing a tax return.”
His advice to non-residents considering opting for Tax Class 2 is to consider personal circumstances:
“For non-resident married couples that qualify for joint filing, where only one spouse works in Luxembourg, the benefit of doing so greatly depends on the income of the spouse working outside Luxembourg. In the case where both spouses work in Luxembourg, it is strongly advised to opt for joint taxation unless substantial non-professional income is derived from outside Luxembourg.”
What are the Luxembourg tax classes?
Luxembourg income tax liability is based on the individual’s personal situation (e.g. family status), according to the PwC Luxembourg Tax Summaries website. For this purpose, individuals are granted a tax class. Three tax classes have been defined:
Class 1 for single persons.
Class 2 for married persons as well as civil partners (under certain conditions).
Class 1a for single persons with children as well as single taxpayers aged at least 65 on 1 January of the tax year.