Luxembourg is the most popular country in Europe for international jobseekers. In fact, three out of four employees are of foreign origin, and 47% of workers are cross-border commuters. But what about the impact of taxation on this attractiveness? Is it really more favourable than in neighbouring countries? And is it better to be a resident worker in Luxembourg or a cross-border commuter? Here are some answers.
Taxation of work in Luxembourg
Luxembourg stands out as having the highest average gross annual salary in the European Union. This significant difference can be explained by the concentration of particularly well-paid sectors, such as finance, insurance and science and technology. Because of its dynamic and specialised economy, the Grand Duchy attracts highly qualified professionals in these fields, which helps to raise the average level of salaries. In addition, the Luxembourg job market favours rapid career progression and competitive salaries, making it a popular destination for international workers.
Comparison of tax systems :
Progressiveness: Luxembourg has a more progressive tax system with 19 tax brackets, compared with 4 in Belgium and 5 in France.
Tax rates: Rates increase with income, but in Luxembourg the progression stops at around €50,751 of annual income.
Tax scale 2023 :
Income | Belgium | France | Luxembourg |
|---|---|---|---|
Band 1 | Up to 15 200 € : 25 % | Up to 11 294 € : 0 % | Up to 12 438 € : 0 % |
Band 2 | 15 200 – 26 830 € : 40 % | 11 295 – 28 797 € : 11 % | 12 438 – 29 241 € : 8–18 % |
Band 3 | 26 830 – 46 440 € : 45 % | 28 798 – 82 341 € : 30 % | 29 241 – 50 751 € : 18–38 % |
Band 4 | >46 440 € : 50 % | 82 342 – 177 106 € : 41 % | 50 751 – 220 788 € : 39–41 % |
Band 5 | - | >177 106 € : 45 % | >220 788 € : 42 % |
To sum up, the Luxembourg tax system particularly favours very low and very high incomes. In addition, a bill to adjust tax scales to the cost of living is expected to reduce taxes further in 2024.
Combined attractiveness: high incomes and low taxes
Luxembourg attracts many professionals thanks to competitive salaries, which are among the highest in the European Union, combined with an advantageous tax regime, particularly for high earners.
In addition to progressive but relatively lenient taxation for the higher income brackets, the country stands out for having lower social security contributions than elsewhere, which further improves the net income of workers.
This combination of high incomes, low taxes and low social security contributions makes Luxembourg a popular destination for both residents and cross-border commuters looking for an attractive living environment and lucrative professional opportunities.
Tax for foreign workers
Foreign workers resident in Luxembourg, as well as cross-border commuters employed by Luxembourg companies, are taxed directly in Luxembourg on their income earned in the country. Under tax treaties between Luxembourg and its neighbouring countries, notably France and Belgium, income generated in the Grand Duchy is exempt from tax in the workers' country of residence. However, to remain compliant, they must, under certain conditions, file a tax return in their country of residence.
This declaration makes it possible to check that all income, even income received abroad, is correctly taken into account and ensures that workers receive tax treatment in accordance with local laws.
These provisions enable cross-border commuters and foreign residents to benefit from the tax advantages offered by Luxembourg while complying with the administrative obligations of their country of origin.
Cross-border worker or resident in Luxembourg?
From a tax point of view, there is not much difference, as tax is paid in Luxembourg in both cases. The main difference lies in the cost of living, which is higher in Luxembourg. For example:
Housing: In 2023, an average rent was €1,500/month (up to €2,039/month in the city centre), compared with €1,188 in Brussels.
Property: In early 2024, the average price was between €6,960/m² and €10,975/m² in Luxembourg, compared with around €3,300/m² in Brussels.
These higher costs are driving many workers to live close to the borders while working in Luxembourg.
Is Luxembourg a tax haven?
Luxembourg is often seen as a tax haven, especially for high earners and foreign companies, thanks to its low corporate tax rates and banking secrecy. Individuals also benefit from low taxes on assets and income from assets.
Conclusion
Luxembourg is fiscally attractive for both companies and workers, thanks to low taxes, high incomes, a dynamic labour market and a multicultural working environment. In 2024, around 75% of Luxembourg's workforce will be made up of immigrant or cross-border workers.
How can you further reduce your tax bill?
Did you know that insurance, pension savings plans and life insurance are tax deductible in Luxembourg? These options can help you further optimise your tax position.
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