8. Cross-border workers in Luxembourg

Although the tax scale is identical to that of residents, cross-border workers do not automatically benefit from the same tax deductions (loan interest, insurance premiums, special expenses, etc.). These deductions depend on the situation of the taxpayer, which is explained below.

Tax assimilation to a resident taxpayer

To ensure equal treatment between residents and cross-border workers, Luxembourg legislation provides a mechanism called tax assimilation. This allows certain cross-border workers to benefit from the same tax advantages as residents, provided specific criteria related to the portion of income earned in Luxembourg are met.

This is therefore an essential point for optimizing your tax return as a cross-border worker, because assimilation can open the way to more favorable taxation and better consideration of deductible expenses.

Conditions for assimilation to a Luxembourg tax resident

To be assimilated to a Luxembourg tax resident and claim your deductions, you must meet at least one of these three conditions:

1. Have at least 90% of household income coming from Luxembourg. Note that the first 50 days of teleworking count as if they were worked in Luxembourg and are not included in the 90% calculation.
2. Have little income outside Luxembourg: the household earns no more than 13.000€ net per year outside Luxembourg.
3. For Belgian residents only: more than 50% of the household’s professional income must come from Luxembourg.

These conditions are not cumulative. Meeting one of the three is sufficient to be assimilated to a Luxembourg tax resident.

Requesting assimilation to a Luxembourg tax resident

You should apply on page 3 of form 100 and check the box corresponding to your situation.

Taxation in case of non-assimilation

If you do not meet any of the assimilation conditions, you will unfortunately not be able to claim deductions (insurance, loan interest, etc.) and will be taxed in tax class 1 (like a single person). Only your Luxembourg income will be considered.

Concrete examples of assimilation

Example 1

Jeanne lives in Belgium. She works in Luxembourg and also receives a pension in Belgium of 15.000€ per year.

Jeanne cannot be assimilated to a Luxembourg resident because her foreign income is greater than 13.000€.

Example 2

François is a resident in France. He works in Luxembourg and also has 10.000€ net rental income in France.

François can therefore be assimilated to a Luxembourg resident because his foreign income (French) is less than 13.000€.

Example 3

Jade and Mark are residents in Germany. Jade works in Luxembourg and Mark in Germany.

They can be assimilated to Luxembourg residents, even though Mark has income in Germany. Jade meets the first condition because 100% of her income is generated in Luxembourg.

Example 4

Fanny and André are married and live in France. They both work in Luxembourg and have shared rental income in France totaling 40.000€.

Since their foreign income individually exceeds the 13.000 € threshold, they cannot be assimilated to Luxembourg tax residents. They will therefore neither be able to opt for joint taxation nor benefit from deductions. Each will be taxed separately in tax class 1, like a single person.

Fixed tax rate for cross-border workers

The fixed tax rate for married cross-border workers is a key concept in Luxembourg tax returns. It can allow certain couples to benefit from more favorable conditions, provided they meet strict criteria.

Who can benefit from the fixed rate equivalent to tax class 2?

Married cross-border couples can request to be taxed in Luxembourg as if they were tax residents and thus benefit from the fixed tax rate corresponding to tax class 2.

To do so, it is sufficient to meet one of the assimilation conditions presented above.

Fixed rate or tax class 1: which is more advantageous?

The fixed rate is not always advantageous. It becomes interesting when the portion of Luxembourg income is higher than foreign income.

However, if one spouse has a significant salary abroad, taxation in tax class 1 may sometimes be more favorable. It is therefore recommended to compare both options each year before filing the tax return.

The trap of an unadjusted rate

Even though the Luxembourg tax administration generally adjusts the tax rate when processing the return, a large income gap from one year to the next does not automatically update the withholding rate.

This can result in:

• an overpayment, which will be refunded after the return,
• or, conversely, an underpayment, with a balance to be paid to the State.

Concrete examples of the fixed rate or tax class 1

The following examples are based on net taxable amounts, after the deduction of the extra-professional allowance.

Example 1: Fixed rate advantageous

Jessica and Paul, married cross-border workers, both work in Luxembourg. They are taxed at a fixed rate of 25%.

Jessica: income of 100.000€ and withholding tax of 25.000€
Paul: income of 40.000€ and withholding tax of 10.000€

• Total income : 140.000€
• Tax due after filing : 33.837€
• Tax paid at source : 35.000€
• Tax refund : 1.163€

The following year, Paul earns 70.000€ and pays 17.500€ withholding tax. His rate remains unchanged.

• Total income : 170.000€
• Tax due : 46.356€
• Tax paid : 42.500€
• Tax amount to repay : 3.856€

Since the fixed rate was not adjusted after Paul’s salary increase, the couple must repay taxes.

Example 2: Tax class 1 more advantageous

Morgane and Théo live in France. Morgane works in Luxembourg and Théo in France.

Morgane: income of 40.000€
Théo: income of 80.000€

As foreign income dominates, it is more advantageous for Morgane to remain in tax class 1 without joint taxation.

Example 3: Fixed rate very advantageous

Elsa and Frank live in Belgium. Frank works in Luxembourg and Elsa has no income.

Frank: income of 50.000€ and withholding tax of 5.000€

• Tax due after filing : 2.879€
• Tax refund : 2.121€

The fixed rate is the most advantageous option.