Tax residents of Luxembourg pay tax on their worldwide income, non-residents on income from sources in Luxembourg.
Income tax rates vary for single individuals, married couples, and single parents.
The tax is levied at progressive rates from 0% to 42%. The income scale is very fractional and has 23 positions. The first EUR 12 438 is exempt; the maximum rate of 42% applies to income over EUR 220 788.
There is also a solidarity tax further charged on the amount of income tax at rates varying from 7% to 9% depending on the level of income.
There are special tax regimes for working foreigners.
Profits in excess of EUR 500 from the sale of movable property owned for less than 6 months are taxed at the usual progressive rates. Profits from the sale of movable property after 6 months of ownership are tax exempt. The exception is cases of holding a significant participation. A significant participation is that of more than 10% of the capital of a company held (individually or jointly with family members) for 5 years before the sale. In this case, the profit from the sale of the asset is taxed at half of the progressive income tax rate (up to a maximum of 22,89%).
Profits from the sale of the main residence are not taxed. The sale of other properties owned for two years or less is taxed at the usual rates. Reduced rates may apply in the case of longer holding periods.
Some types of interest income are taxed at the rate of 20%. Fifty per cent of dividends from eligible companies are exempt from tax.
The corporate income tax rate for companies with profits over EUR 200 000 is 17%.
Reduced rates apply to lower-income companies.
Corporate income tax is also subject to a solidarity surtax at the rate of 7%.
Tax is also levied by municipalities. In Luxembourg City, the municipal tax rate is 6,75%.
The overall effective tax rate in Luxembourg City is thus 24,94%.
Dividends received are exempt from tax subject to a number of conditions, including:
Profits from the sale of shares may be tax exempt if one holds at least 10% participation or participation with the acquisition price of at least EUR 6 000 000, for at least 12 months.
As a general rule, the sale by a non-resident company of at least 10% participation in a Luxembourg company within 6 months of the acquisition date is subject to taxation in Luxembourg.
A foreign company is considered a controlled foreign company if:
The taxpayer must include the CFC’s non-distributed profit in its tax base if such profit arose from arrangements that were aimed at obtaining tax advantages and is generated through the assets, risks and significant people functions performed by the taxpayer.
The profit of a CFC is exempt if it does not exceed EUR 750 000 or 10% of operating costs.
Portfolio investment dividends are taxed at the rate of 15%.
The rate can be reduced to 0% in the case of significant participation. Thus, tax is not withheld when dividends are paid to a corporate member resident in a DTT (Double Taxation Treaty) country and taxed at a rate of at least 8,5%, who has held at least 10% participation or participation with the acquisition price of at least EUR 1 200 000 for at least 12 months.
There is no withholding tax on royalties and interest payments.
The tax rates can also be reduced under the relevant DTTs (Double Taxation Treaties) or EU directives.
The standard VAT rate is 17%.
The rates for certain goods and services are 14%, 8% and 3%.
For employees, there are compulsory social contributions withheld by employers:
Luxembourg corporate taxpayers pay net wealth tax (NWT).
The tax is payable at the rate of 0.5% on net assets of up to EUR 500 million and at the rate of 0,05% on net assets of over EUR 500 million.
When determining the tax base, assets are accounted for at market value, with special rules applying to real estate.
Shareholdings the dividends from which are tax exempt are not generally subject to NWT.
There is a minimum NWT set in euros, and its size varies depending on the value of the company's assets.
There are certain opportunities for reducing NWT.
The sale of real estate located in Luxembourg is subject to a registration duty payable at the rate of 7% (surtax on the registration duty at a rate of 3% – in Luxembourg City).
In addition, registration duties are levied at various rates on the contribution of Luxembourg real estate to the capital of a company, as well as in relation to certain other contracts.
There is inheritance tax.
The rates vary depending on the degree of relationship and other factors.
There are gift taxes, and gifts are required to be evidenced by a notarial deed.
Property taxes are levied at the level of municipalities, the tax liability depends on the value, category, and location of the property.
Luxembourg has signed 86 Double Tax Treaties (DTC) with the following jurisdictions:
86 DTT: Albania, Andorra, Armenia, Austria, Azerbaijan, Bahrain, Barbados, Belgium, Brazil, Brunei Darussalam, Bulgaria, Canada, China, Chinese Taipei, Croatia, Czech Republic, Cyprus, Denmark, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Guernsey, Hong Kong, China, Hungary, Iceland, India, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Korea (Republic of), Kuwait, Lao People's Democratic Republic, Latvia, Liechtenstein, Lithuania, Malaysia, Mauritius, Mexico, Moldova (Republic of, Monaco, Mongolia, Morocco, Netherlands, Norway, Panama, Poland, Portugal, Qatar, Romania, Russian Federation, San Marino, Saudi Arabia, Senegal, Seychelles, Sierra Leone, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Vietnam.
In addition, Luxembourg has signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The Multilateral Convention entered into force for Luxembourg on August 1, 2019.
No exchange control.
