AOW, pension and tax in Luxembourg: everything to the country of residence, and you declare it yourself

The treaty with Luxembourg is from 1968, and you notice it: it follows the old model in which the country of residence gets the pension. What it doesn't regulate is as important as what it does.

The occupational pension: to Luxembourg

Article 19: pensions and other similar remuneration paid to a resident of one of the States in consideration of past employment shall be taxable only in that State. Your occupational pension goes exclusively to Luxembourg, without threshold and without Dutch source-state tax.

For that you apply to the Dutch tax authority for the wage tax exemption, with a Luxembourg certificate of residence. Without that application your fund keeps withholding and you only get it back after a year.

The AOW and the annuity: via the residual article, also to Luxembourg

The treaty mentions social security nowhere. Your AOW is not a pension from past employment and therefore falls under article 21, the residual article: other items of income of a resident of one of the States shall be taxable only in that State. So the same outcome: only Luxembourg taxes, and for the AOW too you apply for the wage tax exemption.

An annuity that doesn't come from employment follows the same route.

The exception: the government pension

Article 20 paragraph 1: remuneration and pensions paid by the Dutch state or a Dutch public body for services in the exercise of governmental functions may be taxed in that State. So ABP stays Dutch. And unlike in most treaties this article has no exception for whoever is a resident and a national of the other state: a Luxembourg passport changes nothing about it.

Luxembourg exempts that pension, but with progression — article 23 paragraph 3 lets Luxembourg apply the rate that would apply if the exempted income had not been exempted. In a progressive scale your government pension therefore pushes the rest of your income up a bracket. So you declare it too, in the boxes for exempt income.

What Luxembourg does with it itself: the scale and the class

Luxembourg taxes the income of its residents in brackets that rise to a top rate of 42 percent, with a contribution to the employment fund on top. Which scale you get depends on your tax class: class 2 for a couple assessed jointly that divides the income by two, class 1a for whoever is single and older than sixty-four, class 1 for the rest. The administration publishes the scales anew every year and has a calculator.

Work it out on your own amounts before you compare with the Netherlands. The outcome depends on your class, on the size of your pension and on the exempt income that counts for the rate, and those three together can fall either way.

No withholding: return and four advance payments

Here Luxembourg differs from the Netherlands. On a pension from abroad nobody withholds anything — Luxembourg funds do, foreign ones can't. So you file a return every year with the Administration des contributions directes, with the pension statement from your fund and from the SVB attached; that statement is mandatory to attach. You get an assessment and a settlement, and then you pay advance payments on 10 March, 10 June, 10 September and 10 December, set on the previous assessment. Paying late costs 0.6 percent interest a month.

Set aside the first year yourself. The first assessment only comes once the year is over, and then it comes in one go.

Your AOW comes along in full

Apart from the tax: within the EU the AOW is paid without reduction. Report your move to the SVB in time, with the date, your Luxembourg address and your bank details. Your further accrual stops on the day of deregistration; whoever leaves before AOW age can continue it voluntarily.