Being taxed as a Luxembourg resident (article 157ter)
Non-resident taxed in Luxembourg: the assimilation of article 157ter LIR, its conditions, and its effect on the French return.
Contents
The situation
A cross-border worker finds that, taxed as a non-resident, he cannot deduct in Luxembourg what a resident would deduct, nor obtain the same treatment of his household. His colleague living on the other side of the border, on the same salary, pays less.
Assimilation is the answer provided by the Luxembourg text. Its conditions must be met, and its effect in France must be checked, since the French return remains due.
What the rules say
| Point | What to retain |
|---|---|
| Principle | a non-resident may ask to be taxed in Luxembourg as a resident |
| Condition | a predominant share of professional income must be taxable in Luxembourg, according to the threshold set by the text |
| Effect in Luxembourg | the family situation and deductible expenses reserved to residents are taken into account |
| Effect in France | none: France keeps its right to tax under the treaty, and the French return remains due |
| Nature | an option, exercised in the Luxembourg return, to be reconsidered each year |
What the firm does with those rules
The work is a comparison, run on both countries at once. Assimilation changes the Luxembourg tax, but it also changes the basis of the French credit: an option that is favourable in Luxembourg can be neutralised in France.
It also means checking the threshold, which is assessed on the household’s whole income and not on salary alone, and which can be crossed in either direction from one year to the next if new French income appears.
Finally it means documenting: expenses deducted in Luxembourg must be evidenced according to Luxembourg requirements, which are not the French ones.
Frequently asked questions
Who can apply for assimilation?
A non-resident whose professional income is predominantly taxable in Luxembourg. The threshold and the way it is computed are set by Luxembourg law, and it is assessed per household.
Does assimilation remove the French filing duty?
Never. It is a Luxembourg option; it does not touch French obligations.
Is it always advantageous?
No. It depends on the household, the deductible expenses and the French-source income. The computation is redone each year.
Is the choice made once and for all?
The option is exercised in the annual return, so it is reconsidered every year.
This article sets out a general framework and is no substitute for a review of your file: every situation has its own dates, figures and documents.