What income is subject to taxation?

There are eight categories of income in Luxembourg: income from salaried employment (see My tax return), income from pensions and annuities, income from investment capital, rental income, miscellaneous income as well as profits from liberal professions, commercial profits or agricultural and forestry profits.

In the process of taxing my income, what is meant by "net income"?

The “net” income referred to in the income tax return is the pre-tax (“gross”) income in the eight categories to be taxed after deductions for any expenses.

In tax jargon, net income from a salaried occupation is the excess of income (salary) over the costs of obtaining it, i.e. the expenses incurred in order to earn income.

The net income can be further adjusted, if necessary, by means of an allowance for a profit on disposal or cessation of activity for entrepreneurs or liberal professions (the agricultural and commercial allowances having been eliminated).

How is annual taxable income determined?

The process for determining taxable income for employees can be summarized as follows:

Income from wages and salaries (and, where applicable, from other income categories)

– fees and exemptions

= Net revenues (adjusted)

– special expenses

= Taxable income

– deductions for real extraordinary expenses, extra-occupational, lump-sum deductions for extraordinary expenses (disability, for care, assistance or domesticity expenses or for children not belonging to the taxpayer’s household)

= Adjusted taxable income (rounded down to the nearest multiple of €50)

> The annual tax scale sets the tax levied on taxable income. This tax is increased by the solidarity tax. By deducting the deductions at source and any advances, we obtain the amount still owed by the taxpayer or a refund.

Let us not forget that to determine the disposable income, it is still important to include a calculation of the dependency contribution as well as to take into account possible tax credits, or even family allowances where the tax reduction for child(ren) is henceforth included.