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).
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).
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).
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:
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.
Which form should you use?
Overpaid income tax is not refunded automatically. Taxpayers have to request a refund by submitting an annual adjustment form (form 163 R for Luxembourg residents and form 163 NR for non-residents).
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!
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