Do you pay taxes in Luxembourg? With its system of withholding tax, the amount withheld from your pay cheque may sometimes be too high. In order to remedy this and reclaim any overpaid funds, taxpayers can either file a tax return, or they may choose to submit a voluntary annual adjustment form. myLIFE explains what this form is, and when you might wish to use it.
In Luxembourg, pensions and employee salaries are subject to withholding tax. This means that income tax is deducted directly from an employee’s salary (by the employer) or a retiree’s pension (by the pension fund) before it is paid. How much depends on the tax class attributed to the taxpayer (1, 1a or 2). Sometimes the amount of tax withheld may be too low, or even too high. This can happen, for example, where a taxpayer is eligible for tax deductions. In this case, they can reclaim these funds by filing a tax return (form100).
By the same token, however, this process can reveal that you actually have more to pay. That’s why tax adjustment forms are only useful to taxpayers who know they are due to be refunded some of their withholding tax by the government.
Taxpayers who are not eligible for taxation by assessment or who do not need to file a tax return can still reclaim any withholding tax they overpaid by filing an annual adjustment form (form 163).
When can a taxpayer submit an annual adjustment form?
Take Julie, for example. Julie graduated in July of 2018 and then began working in September. Her tax is withheld from her salary directly, and she does not have to file a tax return.
But for these first few months of work, Julie could reclaim a portion of the income tax she paid. That’s because the tax withheld from employee salaries is calculated based on a full year, and then prorated to the correct number of months. This means it will be too high for 2018, as Julie had only been working for four months, not for the entire year. In 2019, it is in her interest to submit an annual adjustment form for her 2018 income.
Julie’s case is not the only one that can lead to a refund. There are several scenarios in which taxpayers can request a refund of withholding tax. These include:
- If the taxpayer begins working in Luxembourg in the middle of the year, e.g. after finishing their studies (like Julie).
- If the taxpayer earned inconsistent income, or no income, during the year (e.g. in the case of temp work).
- If the taxpayer did not receive a tax deduction for dependent children, a family allowance from the CAE (Caisse pour l’Avenir des Enfants), State financial aid for higher education from CEDIES or financial aid for volunteers from the SNJ (Service National de la Jeunesse), and they wish to obtain a tax reduction in the form of tax relief.
- If the taxpayer (employee or pensioner) is applying for a single-parent tax credit (CIM).
=> Unlike Luxembourg residents, taxpayers residing outside of Luxembourg cannot submit a CIM request on the annual adjustment form. They must file a tax return (form 100).
- If a resident taxpayer has expense deductions to claim, e.g. for exceptional expenses or extraordinary costs (which cannot be entered on the tax return) – however, taxpayers may not use the annual adjustment form to claim interest expenses for a mortgage on their primary residence. This must be done on the tax return.
=> Non-resident taxpayers can only claim a limited amount of deductible expenses on the annual adjustment form (work-related expenses). To claim additional tax deductions, they must file a form 100 return and meet the conditions for being treated as a resident for tax purposes.
- If a non-resident taxpayer has not worked in Luxembourg for at least nine consecutive months. In this case, they must declare any foreign-earned income.
=> Taxpayers who have not worked for at least nine consecutive months in Luxembourg or who have not lived in Luxembourg for the full tax year in question may still submit an annual adjustment form provided that their gross income in Luxembourg accounts for at least 75% of their total income for the year (in Luxembourg and abroad). In this case, they must submit salary statements from Luxembourg and abroad when filing the annual adjustment form.
- If a non-resident taxpayer’s family situation has changed during the year in a way that entails the attribution of a different tax class (e.g. in the event of marriage, or of a child born to a single parent).
Resident or non-resident taxpayers who do not fit any of the cases listed above may still submit an annual adjustment form by combining both their Luxembourg and their foreign-earned income into a theoretical taxable base, and using that to calculate the tax rate applicable to the income listed on the annual adjustment form.
Please note: the annual adjustment from can only be used if the taxpayer is not required to file a form 100 tax return, and does not choose to file one anyway.
Overpaid income tax is not refunded automatically. Taxpayers have to request a refund by submitting an annual adjustment form.
How do you request a refund through an annual adjustment?
Which form should you use?
As a rule, you should attach your salary statements from Luxembourg and abroad when filing the annual adjustment form.
Where should you submit it?
This form should always be sent to the RTS location responsible for where the taxpayer lives, along with their Luxembourg and foreign salary statements.
Note that you can also request tax adjustments online using MyGuichet.
When should you submit it?
Annual adjustments are used to correct the amount of tax paid on income from the previous tax year. This means that taxpayers can file the annual adjustment form until 31 December of the following year.
For example, for income earned in 2018, the form should be submitted by 31 December 2019.
If one of the above cases applies to you, remember to file your form before the end of the year!