Worldwide Individual Taxes Summaries(2002-2003)棗Luxembourg

Worldwide Individual Taxes Summaries(2002-2003)棗Luxembourg

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The Luxembourg government enacted a tax reform applicable as from January 1, 2002.  This reform includes a reduction of progressive income tax rates.The currency unit in LuxeMBOurg is now the Euro.

Individual income tax is levied on the worldwide income of individuals residing in Luxembourg, as well as on Luxembourg-source income of nonresidents.  Generally, an effectively used abode in Luxembourg or a stay in LuxeMBOurg in excess of six consecutive months entails residence, even if the period overlaps two fiscal years or is interrupted by short absences.

Employee gross income/ Income from employment includes all benefits in cash and in kind received by an individual.  If an employer provides a house or apartment to an employee, the monthly benefit in kind is valued at 25% of its unitary value, with a minimum of three-quarters of the rent effectively
paid by the employer.  Furniture put at the disposition of the employee gives rise to an additional 10%.  If the employer pays electricity and other charges, these must be added to the benefit at their nominal value.  If the employee rents a house or an apartment and pays the rent, reimbursement of the rent by the employer is taxed entirely as a benefit.  The monthly benefit in kind arising from the private use of a company car
corresponds to private mileage multiplied by the car's ilometer cost.  
This evaluation can be replaced by a lump-sum evaluation method, according to which monthly taxable fringe benefit corresponds to 1.5% of the full purchase price (including VAT) of the new car.  A number of items are exempt from tax, such as debtor-interest savings on a reduced-or nil-interest loan
granted by the employer (within certain limits) and overtime payments, up to a certain limit.Under specific conditions, moving expense reimbursements are tax exempt.  Nonresidents are taxed on salaried income if their occupation is exercised
in Luxembourg or if their salary is paid from LuxeMBOurg.  Tax treaties generally grant exemption if the nonresident stays for less than 183 days in the calendar year and if the remuneration is paid and borne by a party in the other country.
Capital gains and investment income/ Short-term capital gains (see comments on speculation profits below) are included in normal taxable income.  However, long-term capital gains on buildings and land (owned longer than two years) and capital gains derived from the disposal of a participation of more than 10% in a company (owned longer than six months) are taxed as
extraordinary income at half the average global tax rate (maximum 19.475%).  Inflation is taken into account by multiplying the acquisition cost by a coefficient.  The first 50,000 of cumulative capital gains realized over a 10-year period is tax exempt.  The 10-year allowance is increased
to 100,000 in the case of collectively taxed spouses.  In the case of a capital gain on a building acquired through direct inheritance, an allowance of up to 75,000 may be granted.  Capital gains on the sale of a main residence are exempt from taxation.  Long-term capital gains realized on investments other than in land, buildings , and on minor
participations (less than 10%) are also exempt from taxation.
So-called speculation profits over 500 on buildings, land and
investments are treated as ordinary income.  Speculation arises when purchase and sale occur within two years for real estate and within six months for other property.
Capital losses can be offset only against capital gains in the same year.Gross income from capital and investments is included in taxable income.  An exemption of 1,500 is granted on portfolio income.  It is doubled in the case of collectively taxed spouses.  Half of the dividend income received is tax exempt if paid by a qualifying company.

Business deductions/ Income-related expenses are normally deductible.Employees benefit from minimum standard deductions of 540 for job-related expenses.  These deductions are doubled if the spouse is also employed.  If expenses for tools, specific work clothes, and so on, exceed the minimum, the actual expenses may be deducted.  Commuting expenses are
tax deductible, with a minimum yearly amount of 396 and a maximum of 2,970 per year.A minimum lump-sum allowance of 25 is deductible form income from capital and investments.  The minimum lump-sum allowance is doubled in the case of collectively taxed spouses if both earn income from capital and
investments.  Actual expenses exceeding this lump-sum allowance can be deducted.  Nonresidents can deduct only expenses related to income subject to LuxeMBOurg taxation.
Nonbusiness expenses/ For residents, certain premiums paid for life, sickness, accident, disability and third-party liability insurance are deductible, up to 672 per family member.  This allowance is increased for a one-time premium for temporary death insurance subscribed to assure the reimbursement of a loan taken up for the purchase of a house.  The related tax deduction varies with the age of the taxpayer.Insurance premiums paid within the context of a private pension scheme
qualifying under LuxeMBOurg tax law are also tax deductible.  Based on the taxpayer's age, the maximum tax deduction varies from 1,500 to 3,200.  If each spouse subscribes to a qualifying private pension insurance contract, the ceiling is doubled.Certain contributions to savings and home-loan assoCIAtions are deductible up to 672 per family member.  Interest arising on a loan contracted to purchase a car, furniture, and so forth, is deductible up to 672 per
family member.  A minimum standard deduction of 480 is granted for the above expenses; it is doubled if the spouse is also employed.Compulsory LuxeMBOurg and foreign legal social contributions covered by a soCIAl security treaty, as well as donations under certain conditions, are also deductible.
Nonresident employees may deduct compulsory soCIAl security contributions and donations to qualifying institutions, as well as the flat allowance of 480.
Personal allowances/ Residents may deduct extraordinary charges for sickness, accidents, living costs of parents, and so on, up to a certain limit.A specific deduction is also available for kindergarten costs.A salaried-income-related allowance of 600 is granted to residents, as well as to nonresidents.  This deduction is doubled if the spouse also is employed.
Spouses who both exercise a professional activity taxable in LuxeMBOurg benefit from a lump-sum allowance of 4,500.
Within specific conditions, residents who acquire shares in Luxembourg based underlying deduction, the individual must notably hold the shares for at least the subsequent four fiscal years (calendar years) following the year of acquisition.Nonresident taxpayers/ If at least 90% of the professional income of a nonresident is taxable in LuxeMBOurg, the taxpayer may opt to be treated as a resident for tax purposes, thus benefiting from the same deductions
and allowances as a resident.  The tax rate applied to LuxeMBOurg-source income is then determined on the basis of the taxpayer's household total worldwide professional income.

Foreign income received by residents that is subject to a tax equivalent to LuxeMBOurg income tax and is not exempted by a double taxation agreement is granted a tax credit; any nonimputable tax in excess is deductible as a tax-deductible expense.

Social security taxes/ Compulsory soCIAl security contributions for employees are listed below.
1. For sickness: 2.65% of gross periodic remuneration, limited to an annual ceiling of 78,541.9
2. For pension: 8% of gross remuneration, limited to an annual ceiling of 78,541.9.Certain multilateral and bilateral soCIAl security agreements protect the interests of temporarily resident employees.See also "Nonbusiness expenses" above.
Employees subject to LuxeMBOurg soCIAl security contributions are subject to the so-called dependency contribution on their gross professional income, less 3,927.09 for 2002.  Net portfolio income and taxable capital gains of Luxembourg-resident taxpayers are also subject to the dependency contribution.  The dependency contribution rate amounts to 1% (flat rate).Wealth taxes/ Wealth taxes are assessed on resident taxpayers' worldwide taxable wealth and on nonresident taxpayers' LuxeMBOurg taxable wealth.  Taxable wealth corresponds to gross value of the elements comprising wealth,
less qualifying deductions.  Wealth taxes are assessed at a flat rate of 0.5% of the global taxable wealth value.

Income tax returns/ The total income of husband and wife and the nonsalary income of minor children forming part of the household are aggregated for purposes of the annual tax computation.  Combined assessments are due in principle if the spouses are not separated on the basis of a legal or judiCIAl dispensation.  The fiscal year corresponds to the calendar year.
Payment of income tax/ Payroll income taxes are withheld by the employer on a monthly basis.  At year-end, the salary income tax payments are, in principle, regularized by the employer or the tax administration, as appropriate.
Wealth tax returns/ An individual's wealth tax is determined on the basis of a specific tax return.  An assessment of the taxpayer's taxable wealth takes place, in principle, every three years at a predetermined valuation date.  Where the taxpayer's taxable wealth changes significantly between
two valuation dates, a new evaluation is made for the next predetermined valuation date.
Payment of wealth tax/ Wealth taxes are paid quarterly.

Tax is calculated in accordance with a graduated table, ranging from 8% on taxable income in excess of 9,750 to 38% on income in excess of 34,500 for 2002.  A solidarity tax of 2.5% of taxes is added.  Married nonresident taxpayers who are not separated are put into Tax Class 2 (generally the tax class for resident unseparated spouses) if they are taxable in LuxeMBOurg for more than 50% of the professional income of their
household.  If both spouses derive professional income taxable in LuxeMBOurg, the application of Tax Class 2 leads to a combined assessment.  Unseparated married nonresident taxpayers who do not comply with the above condition are put into the higher intermediary Tax Class 1a.
The following tables show taxes for taxable salaried income between 20,000 and 155,000.  (Taxable salary income equals gross salary income minus all qualifying deductions under LuxeMBOurg income tax law).

Single taxpayer (class 1)
Single taxpayer with dependent children (class 1a.x)
                                                               (In Euros)
                                 Income tax
Taxable                 Single:       S+1
Salaried    Single(S)   SpeCIAl rate     Child( C)       S+2C           S+3C
Income     (Class 1)    ( Class 1a)   ( Class 1a.1)  ( Class 1a.2) ( Class 1a.3)
20,000       1,390            61         _               _            _
38,700       7,217         6,057         5,135         4,212         3,290
58,000      14,734        13,575        12,652        11,730        10,807
77,400      22,290        21,131        20,208        19,286        18,363
96,700      29,808        28,648        27,726        26,803        25,881
116,000     37,325        36,166        35,243        34,321        33,398
135,500     44,920        43,761        42,838        41,916        40,993
155,000     52,515        51,356        50,434        49,511        48,589
Married taxpayer (class 2)
Married taxpayer with dependent children (class 2.X)
                                                               (In Euros)

                                                 Income tax
                           Married (M)     Child (C)     M+2C         M+3C
Taxable salaried income     (Class 2)     (Class 2.1)  (Class 2.2)  (Class 2.3)
20,000                         41            _           _            _  
38,700                      2,527          1,605          682         _
58,000                      7,373          6,451        5,528       4,606

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