Luxembourg operates a progressive wage withholding tax system with rates ranging from 0% to 42%, increased by surcharges that can bring the top marginal rate to 45.78%. Payroll taxes are determined with reference to the employee’s personal situation (e.g. family situation) as indicated on the employee’s tax card issued by the Luxembourg tax authorities.
In relation to wage withholding tax, Luxembourg employers must inter alia:
- provide monthly pay slips and annual salary certificates to the employees;
- file monthly withholding tax forms and an annual report with the Luxembourg tax authorities; and
- withhold and remit payroll taxes on a monthly basis.
Luxembourg social security contributions are levied in 2 parts: the employer part and the employee part. The rate is approx. 12% for the first part and 12.45% for the second (totaling approx. 25% of gross salary). Contributions are capped and are not calculated over an employee’s salary exceeding approx. €162,000/year, except for dependence insurance (1.4%), which applies without a ceiling.
In relation to social security contributions, Luxembourg employers must inter alia:
- register with the social security office within 8 days of starting activity;
- declare the employee’s gross salary on a monthly basis; and
- withhold social security contributions and pay them to the authorities on a monthly basis.
Although most employers outsource the above tasks to payroll service providers for efficiency and compliance reasons, understanding these obligations is key to running compliant payroll in Luxembourg.
Apart from the above, particular attention should be paid to the employment of cross-border employees (e.g. employees residing in France, Belgium and Germany) which is very common in Luxembourg due to the small size of the country. Companies should be mindful of the complex interplay between tax residency rules and social security coordination across jurisdictions.
Want to know more about this topic? Reach out to one of our colleagues mentioned below.
