What are the disadvantages of the fixed rate?
If you opt for the fixed tax rate, you will have to file your tax return in Luxembourg every year. This is because tax will be regulated on the basis of the tax return. Once your tax return has been processed, your tax rate may be adjusted upwards or downwards.
The tax rate is based on your income for the previous year. So if your salary rises or falls during the year, the tax adjustment when you file your tax return can sometimes be substantial.
To avoid this, we recommend that you request an adjustment to your rate as soon as you are aware of an increase in your salary or a larger bonus.
Example 1
Rose and François are married and live in France. They are both employees.
Rose works in France and has a taxable income of €18,000 a year.
François works in Luxembourg and has a taxable income of €32,000 a year.
In tax class 1, François' average tax rate would be 9.63%.
If assimilation were applied, his rate would be 6.42%.
It is therefore advantageous for François to request a fixed tax rate. The income from Luxembourg is greater than the income from abroad, so François' tax rate will be lower.
Example 2
Rita and Philipp are married and live in Germany.
Rita works in Luxembourg as an employee. She receives taxable income of €40,000 a year.
Philipp is self-employed in Germany and earns taxable income of €60,000.
In tax class 1, Rita's average tax rate would be 13.46%.
By claiming a fixed rate and therefore applying tax class 2, her rate would be 18.21%.
It is therefore not advantageous for Rita to request a flat rate of tax. As the income from Germany is higher than the income from Luxembourg, this increases Rita's tax rate. It is therefore more advantageous for her to remain in tax class 1.
The tax rate is based on your income for the previous year. So if your salary rises or falls during the year, the tax adjustment when you file your tax return can sometimes be substantial.
To avoid this, we recommend that you request an adjustment to your rate as soon as you are aware of an increase in your salary or a larger bonus.
Example 1
Rose and François are married and live in France. They are both employees.
Rose works in France and has a taxable income of €18,000 a year.
François works in Luxembourg and has a taxable income of €32,000 a year.
In tax class 1, François' average tax rate would be 9.63%.
If assimilation were applied, his rate would be 6.42%.
It is therefore advantageous for François to request a fixed tax rate. The income from Luxembourg is greater than the income from abroad, so François' tax rate will be lower.
Example 2
Rita and Philipp are married and live in Germany.
Rita works in Luxembourg as an employee. She receives taxable income of €40,000 a year.
Philipp is self-employed in Germany and earns taxable income of €60,000.
In tax class 1, Rita's average tax rate would be 13.46%.
By claiming a fixed rate and therefore applying tax class 2, her rate would be 18.21%.
It is therefore not advantageous for Rita to request a flat rate of tax. As the income from Germany is higher than the income from Luxembourg, this increases Rita's tax rate. It is therefore more advantageous for her to remain in tax class 1.
Updated on: 12/02/2024
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