COLLECTIVE TAXATION OF PARTNERS IN LUXEMBOURG

The concept of partnership in Luxembourg

Article 2 of the Act of 9 July 2004 defines a partnership as "a living community of two people of different or the same sex who live as a couple and who have made a declaration to this effect".

This declaration is made in writing before a civil registrar and is then entered in a file kept by the public prosecutor's office. This partnership under Luxembourg law is recognised by the Luxembourg tax authorities.

Partnerships under foreign law are also recognised in Luxembourg (pacte civil de solidarité in France, contrat de cohabitation légale in Belgium, Eingetragene Lebenspartnerschaft in Germany).

The conditions for collective taxation of resident partners

Unlike married couples, resident taxpayers must meet the following conditions in order to be taxed collectively (Art. 3bis LIR):

• They must apply jointly and sign the income tax return together.
• They must have shared a common domicile or residence throughout the tax year.
• The partnership must have existed from 1 January to 31 December of the tax year (which excludes the year in which the partnership was entered into or the year in which it was terminated for joint taxation).

It is not possible to obtain class 2 on the tax withholding form (and therefore a reduced withholding tax) because the existence of the partnership and the condition of joint residence must be checked at the end of each year. In order to regularise tax withholdings, taxation by means of a tax base (i.e. a tax return) is therefore unavoidable

In the event of (voluntary or involuntary) termination of the partnership contract, partners will not be able to benefit from the application of tax class 2 for the following 3 years, as is the case for married or widowed persons.  

The conditions for collective taxation of non-resident partners

In order to be taxed collectively, non-resident partners must in addition to the conditions mentioned in the above paragraph request the application of Article 157 ter LIR, provided of course that they are entitled to it. To do this, it is sufficient for one of the partners to earn at least 90% of its professional income in Luxembourg.

The strict application of the Administrative Circular requires that the documents necessary to prove the existence of the partnership (partnership certificate and certificate of joint residence) are produced every year, unlike resident partners - for whom the application for certificates is only for the first year.

If the conditions for the collective taxation of partners are met, the tax base (and thus the tax) will be determined in the same way as for the collective taxation of spouses.