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Although both Luxembourg enjoys a reputation for being a tax haven for the idle rich, ordinary working people in Luxembourg suffer from some of the highest tax rates in the world.

Luxembourg has an upper bracket of ‘only’ 46 per cent. There have been a variety of proposals both to cut the level of income tax and to simplify the taxation systems The tax year in Luxembourg is the same as the calendar year – 1st January to 31st December).

As in many other countries, employees’ income tax (often referred to as salary tax) is deducted at source by their employers, i.e. on a ‘pay as you earn’ (PAYE) basis, and if most or all of your income is from your job, you may not even need to file a tax return, provided the tax paid on your salary is adequate to cover your tax obligations and you aren’t entitled to a refund or any special allowances or tax credits. On the other hand, if you have various sources of income, it’s prudent to employ an accountant or professional tax adviser to complete your tax returns and ensure that you’re properly assessed, as the tax system in Luxembourg is inordinately complicated. The information below applies only to personal income tax and not to companies and was current in mid-2001.

Many books are published in the local languages designed to help you understand and save taxes, and income tax guides are published each year as special editions of many of the consumer and financial magazines and journals. Many income tax guides now come with CD-ROMs containing software to help you complete your tax forms and calculate your tax liability. The Ministry of Finance also publishes extensive information on income taxes on its website, often in English as well as the local languages. There are local tax offices (contact your town hall or local government for the address) where you can obtain brochures or have questions answered.

In Luxembourg, income tax is withheld from your salary according to the information supplied on your official tax card (fiche de retenue d’impôt). When you first register at your town hall or at the beginning of each tax year, you’re sent a tax card listing your name, address, marital status and the number of children in your household for whom you’re entitled to deductions or allowances. The tax card will also indicate the tax category to which you belong:

Class 2 – married couples assessed jointly;
Class 1a – single or widowed people over the age of 65 and single, separated, widowed or divorced people with dependants living in the household;
Class 1 – everyone not eligible for class 1a or class 2, i.e. all single people under the age of 65 with no children or other dependants living in the household.

The number of dependants for which you’re entitled to claim tax relief is indicated by a figure following the tax class: e.g. a married couple with two children would be classified as 2.2, while a single mother with one child would be 1a.1. A married person who is widowed, divorced or separated remains in class 2 for three years following the bereavement or separation.

You must verify the information on the card you receive and then give the card to your employer, who uses it to record payroll information, including the income tax deducted from your salary and paid to the tax authorities. If any of the information on your tax card is incorrect when you receive it or if your situation changes during the tax year (e.g. if you marry or a child is born or leaves home), you must notify the tax authorities and your employer immediately. It isn’t as important to notify them of the death of your spouse or of a divorce or legal separation, as your tax class won’t change for another three years.

The tax card includes an official form for notifying the tax office of any changes, which also lists the address where it should be sent. If both spouses work, the person receiving the ’second income’ receives a special tax card, called a fiche de retenue d’impôt additionnelle, which tells his employer to calculate his income tax accordingly.

The employer is responsible for tracking and recording your travel and commuting deductions (based on the address at which you’re officially registered) as well as any additional deductions, expenses or extraordinary charges which affect your taxes. To update your tax card for such items, you must complete Form 161 and send it to the tax office. In theory, you don’t need to file a tax return at the end of the year if your only income is from employment and you’ve properly notified both the tax office and your employer of any special circumstances. However, there are a number of tax advantages (mostly related to investments and investment income) which cannot be claimed unless you file an income tax return.

Banks in Luxembourg are leading the way towards a ‘cashless society’ with the various types of cards they issue to their customers.

Initially, you will probably be issued with a debit card, which permits you to use your bank’s ATMs (distributeurs automatiques) for deposits, withdrawals, transfers of funds and, in most cases, bill payments and other standard forms of transfer between accounts. Most debit cards also give you access to any ATM that’s part of the related debit card network (such as Maestro or Cirrus), although some banks make charges for use of another bank’s machines. You can also use debit cards to make purchases at many shops and petrol stations. Debit cards are often preferred to credit cards, as the money is credited almost immediately to the vendor’s bank account.

Debit cards normally have an electronic chip embedded in them, which allows them to be read by special machines. You need a four-digit code (referred to as a PIN in French) to validate a transaction or to use your card in a bank machine. In Luxembourg, the S-Card is common, as are the major debit cards of neighbouring countries (Maestro, Cirrus, Bancontact).

It’s also possible to make small cash purchases in Luxembourg using a cash card, which you can use like a phone card. There’s an initial charge for the card (normally no more than €5 to €10), after which you can load the card with up to €120 of electronic ‘cash’ at either your bank machine or any telephone booth displaying the cash card symbol. (Some banks are now offering a machine that can be used with your home computer for this purpose.) At a store where cash cards are accepted, you can pay by inserting your card in a special machine and confirming the amount you wish to pay. Note that no PIN is needed for cash card transactions, so if you lose your card it can be used by the person who finds it (just like cash). In Luxembourg your S-Card, Maestro or other debit card may work as both a debit card and an electronic purse, depending upon your bank. Cash card functions are increasingly being incorporated within both credit and debit cards.

Banking is a major industry in Luxembourg, and there’s no shortage of banks to choose from. Luxembourg is home to over 220 different banks employing 10 per cent of the population!

The banks in the region have long led the world in the field of electronic banking, and there are few transactions you can’t do either from an ATM (automatic teller machine) or from your home computer. Banks offer a wide range of services, including personal and commercial banking, investment and insurance services, and personal, commercial and mortgage loans. Most larger banks have websites containing information about the services they offer, including online banking, and in some cases application forms.

Despite the spread of electronic banking, it’s still necessary to have at least a current account (compte à vue) in your country of residence, as cross-border bank transactions can be expensive and complicated, even when everything is denominated in euros. Online banking, using bank-supplied software or via the Internet, is gaining in popularity.

Personal accounts are generally more expensive in Luxembourg than in the UK or USA. You should expect to pay between €50 and €100 per year for a standard current account that includes debit and credit cards, plus ATMs and Internet banking facilities. Banks usually charge for every service separately, as well as for each transaction, although they may offset charges by paying a (very small) rate of interest on your average account balance each month (provided you remain in credit). Most banks offer a variety of ‘package programmes’ which include the fees for the various bank cards, online banking access, a number of transactions at bank machines and often some form of account insurance, all for a single annual fee.

You can arrange to receive bank statements at regular intervals (daily, monthly, quarterly or annually) or to pick them up at your branch (in which case you avoid being charged a mailing fee plus postage) or simply print them at a bank machine or from your home computer (and not be charged at all). Bank fees are usually deducted directly from your account either quarterly or at the end of the year.

Wandering through central Luxembourg City, you’d be forgiven for thinking that every bank in the world has a Luxembourg branch – in fact you’d probably be right! If you wish, you can deal with banks based in your home country, although their accounts, terms and services are often quite different from what you’re used to. The major indigenous banks are Banque & Caisse d’Epargne de l’Etat (BCEE), also known as Spuerkeess in Lëtzebuergesch, the Banque du Luxembourg and the Banque Générale du Luxembourg.

The Luxembourg banking industry maintains an informative website (www.bank.lu) where you can find information about all the banks in the Duchy, including the services they offer to individuals and corporations. The site has a search engine that you can use to draw up lists of banks offering particular services.

Opening Hours

Most banks are open Mondays to Fridays from as early as 8.15am to around 5pm. Most branches close for lunch from 11.45am to 2pm. A few banks in and around major shopping centres stay open through lunchtime and some are open on Saturdays.