• Luxembourg Tax System

  • TAX RESIDENCY

    Tax Residency

    A company is considered to be tax resident in Luxembourg if either its legal seat or place of central administration is located in Luxembourg.

    Taxable Basis

    Luxembourg tax resident companies are taxed on their worldwide income.

    Non-Luxembourg tax resident companies are taxed only on income generated in Luxembourg.

  • TAX ADMIN

    Taxable Period

    The taxable period for a company in Luxembourg is either the calendar year or its accounting year.

    Tax Returns

    Every company needs to submit an annual tax return by 31st of May of the following tax year.

    Tax Assessments

    Assessments are issued after the end of the tax year and are usually finalized within 5 years. If the tax return is found to be incorrect or incomplete (with or without intention of fraud) the period increases to 10 years.

  • CORPORATION TAX

    Corporation Tax

    Corporation tax is levied at the rate of 21% for companies with taxable income above €15,000 and at 20% for companies with taxable income less than €15,000.

    Taking into account the Employment Fund Surcharge of 7% on corporation tax liability and the Municipal Business Tax (see below in Other Taxes) then the effective tax for a corporation in Luxembourg rises to 28.15% and 29.22% respectively (27.75% and 28.80% respectively before 31 December 2012 - see full list of tax changes introduced in Luxembourg from 1 January 2013).

    A minimum tax of €3,210 (€1,575 before 31 December 2012) is payable by companies whose balance sheet at the end of the fiscal year consists more than 90% of financial assets, transferable securities and cash at bank.

    In addition, a minimum corporate tax will be imposed on all other companies. This minimum corporate tax will depend on the balance sheet total of each company as follows:

    Balance Sheet Total Minimum Corporate Tax
    Up to €350,000 €535
    €350,001 - €2,000,000 €1,605
    €2,000,001 - €10,000,000 €5,350
    €10,000,001 - €15,000,000 €10,700
    €15,000,001 - €20,000,000 €16,050
    Over €20,000,001 €21,400
    Notes:
    1. Balance sheet total refers to the total at the end of the relevant fiscal year.
    2. The Minimum Corporate Tax above includes Employment Fund surcharge (7%) for the Principality of Luxembourg.

    All subsidiary companies in a tax unity group will be subject to the minimum corporate tax but the total amount of corporate minimum tax payable by the tax unity group cannot exceed €21,400.

  • DIVIDENDS

    Dividend Income

    Dividend income received by a Luxembourg company is taxable. However, if the dividend income is received from a qualifying participation (see below for definition) then such dividend income is exempt.

    Withholding Tax on Dividends

    Dividend payments to local and foreign recipients are subject to a 15% withholding tax.

    Dividend payments to a foreign company may be exempt from withholding tax if:

    1. the foreign company owns directly or indirectly at least 10% of the capital of the dividend paying company (or shares with an acquisition value of at least €12m) for an uninterrupted period of at least 12 months; and
    2. the foreign company is subject to tax in its country at a rate of at least 10.5%.

    Dividend payments to a local company may be exempt from withholding tax if the parent company owns directly or indirectly at least 10% of the capital of the dividend paying company (or shares with an acquisition value of at least €1.2m) for an uninterrupted period of at least 12 months.

    Dividend paid by UCITs are exempt from withholding tax.

  • INTEREST

    Interest Income

    Interest income is taxable under corporation tax i.e. 28.15% or 29.22%.

    Interest Expense Deductibility

    Interest expense is generally tax deductible if incurred for the generation of taxable income. Interest expense incurred for the generation of exempt income is not tax deductible.

    Withholding Tax on Interest

    Luxembourg does not impose any withholding tax on the payment of ordinary interest to local or foreign recipients.

    Interest on profit-sharing bonds is treated as dividends and suffers a withholding tax of 15%.

  • ROYALTIES

    Royalty Income

    Royalty income is taxable under corporation tax i.e. 28.15% or 29.22%. The legislation provides for an 80% exemption for royalty income from the use and the right to use patents, trademarks, design, domain names, models and software copyrights. A detailed analysis of Luxembourg's IP regime can be found here.

    Royalty Expense Deductibility

    Royalty expense is generally tax deductible if incurred for the generation of taxable income. Royalty expense incurred for the generation of exempt income is not tax deductible.

    Withholding Tax on Royalties

    Luxembourg does not impose any withholding tax on royalty payments to local or foreign recipients.

  • TAX LOSSES

    Ordinary Tax Losses

    Ordinary tax losses can be carried forward indefinitely.

    Ordinary tax losses cannot be carried back.

    Group Relief

    Luxembourg permits tax unity whereby taxable income/loss is computed on the consolidated result for a period of five years.

    For tax unity to be allowed the following conditions should be met:

    • each company is a fully taxable company, resident in Luxembourg;
    • at least 95% of each subsidiary's capital is directly or indirectly held by the parent company;
    • all companies have the same tax year;
    • the tax unity is requested jointly by the parent company and each subsidiary that becomes part of the group.
  • CAPITAL GAINS

    Disposal of Shares by Foreign Shareholder

    The profit on disposal of a Luxembourg company by its foreign shareholder is exempt from taxation in Luxembourg.

    Capital Gains

    Capital gains on the disposal of capital assets are taxed under income tax.

    However, the disposal of shares in qualifying participations (see below for definition) is exempt from taxation.

    Qualifying Participation Exemption Regime: Dividend income from and capital gains on the disposal of qualifying participations are exempt from taxation in Luxembourg, if the following conditions are met:

    1. Dividend paying company is:
      • a fully taxable company, resident in Luxembourg; or
      • a fully taxable company, resident in a foreign country, with a comparable tax rate (usually taken to mean above 10.5%).
    2. Beneficiary of dividend is:
      • a fully taxable company, resident in Luxembourg; or
      • a Luxembourg permanent establishment of a company resident in an EU Member State; or
      • a Luxembourg permanent establishment of a company resident in a country with which Luxembourg has a double tax treaty; or
      • a Luxembourg permanent establishment of a company resident in an EEA country.
    3. At the date of payment of the dividend or disposal of the participation, the beneficiary holds directly or indirectly at least 10% (or with an acquisition value of at least €1.2m for dividends or €6m for disposals) of the participation for an uninterrupted period of 12 months.

    Capital Losses

    Capital losses are treated as ordinary tax losses.

  • PARTNERSHIPS

    Partnership Profits

    General and Limited partnerships are treated as transparent entities for tax purposes which means that their profits are taxed directly in the hands of each partner.

  • BRANCHES

    Branch Profits

    A Branch is treated in the same manner as other types of companies in Luxembourg.

    There is no tax in Luxembourg on the remittance of the profit of a Luxembourg Branch to its foreign head office.

  • STAMP DUTY

    Stamp Duty

    There is no stamp duty in Luxembourg.

  • CAPITAL DUTY

    Capital Duty

    There is no capital duty in Luxembourg.

  • VAT

    VAT Taxable Transactions

    VAT is levied on the supply of goods and services.

    VAT Standard Rate

    The standard rate of VAT is 15%. The Finance Minister has announced a planned increase in VAT rates sometime in 2015.

    VAT Reduced Rate(s)

    The reduced rates of VAT are 12% (wines, advertising and printed marketing materials), 6% (gas and electricity) and 3% (e-books, printed materials, water, pharmaceuticals, most food products and radio and television broadcasting services).

    VAT Exempt Transactions

    Financial, banking, insurance and reinsurance, health and medical services as well as leasing of immovable property are exempt from VAT in Luxembourg.

    VAT Registration Threshold

    The registration threshold for VAT purposes in Luxembourg is €10,000 (to be increased to €25,000 from 1 January 2013).

    VAT Filing & Payment

    Filing of VAT returns and the payment of VAT liability is made every 1 or 3 months.

    As of 1 January 2013, submission of the VAT return should be done only electronically.

  • OTHER TAXES

    Municipal Business Tax

    All companies registered in Luxembourg are liable to the Municipal Business Tax.

    The taxable base on which the municipal business tax is paid is calculated along the same principles as with the income tax. An additional exemption of €17,500 is granted.

    The rates of the municipal business tax range from 6% to 12% depending on the municipality. The rate for the city of Luxembourg is 6.75%.

    Employment Fund Surcharge

    A 7% (increased from 5% from 1 January 2013) Employment Fund surcharge is imposed on the income tax liability of companies.

    Net Wealth Tax

    Resident companies and partnerships limited by shares are subject to net wealth tax on the value of their worldwide net worth.

    Net worth is defines as assets minus liabilities. The valuation of the business assets must be made in accordance with the Valuation Law.

    The rate of net wealth tax is 0.5% on the net taxable wealth. Qualifying participations (see definition above) are exempt from the net wealth tax.