More Tax Facts On Luxembourg—And Why It's The Place To Be

Luxembourg has a lot to offer in a lot of areas. Its capital city is charming, its countryside idyllic. Great food, cultural events, and lifestyles, and an amazing mix of expats and locals. But as a tax man, I want to focus on its tax aspects—continuing from my post last year, Tax facts about Luxembourg from a recent arrival. This time I want to explore the good things that the Luxembourg tax system offers individuals. For a start, I'm impressed by how it allows people to optimise their tax positions while maintaining fairness overall. In helping design the KPMG Tax Calculator I saw the full extent of what the government has done to allow individuals to optimise their own filings.

Luxembourg is also in the meaty part of the curve when it comes to income tax. Using KPMG LINK technology, I compared individual taxes in 17 European countries. Inputting a standard situation, 1 I set the individual's income at €100,000, which resulted in total income tax and social security between 19% (Switzerland, specifically Geneva) and 49% (Greece). In comparison, Luxembourg imposes 27%. Increasing the income to €200,000 the rates vary between 29% (again Geneva) and 52% (again Greece), with Luxembourg at 36%. This means that the country offers benefits and deductions, but the government maintains a strong tax base too, which helps everyone.

(Read more details on percentages like these in the Salary Comparisons Report).

Employee benefits

Every country has its own tax laws prescribing how income is taxed, permissible exemptions, and special provisions. Within these frameworks, employment benefits can be optimised by exchanging cash taxed at progressive rates for other benefits that are taxed less or are even exempt.

Luxembourg scores well for such benefits, though it differs by company, of course, and some benefits are available only under certain conditions. For example, the interest subsidy scheme is available to all employees, whereas certain equity-based compensation is only available to higher level personnel. Company cars are a popular benefit, as are meal vouchers. Special exemptions are available for employees hired from abroad and who meet certain conditions.

Let's look at a married individual in tax class 2, Luxembourg-resident, subject to Luxembourg social security, no children, and earning100,000/year (gross). Let's call him Dave. Dave costs his employer113,220, taking the average mutual insurance rate of 1.16% into account. Dave nets73,140. Here...