Luxembourg-S.A.

Basic taxes (briefly)

Personal tax 8-42%
Corporate tax (in detail) The overall effective tax rate in Luxembourg City is 24.94%
Capital gains tax. Details Capital gains are generally included in taxable income and taxed at the standard corporate tax rate
VAT. Details The standard VAT rate is 17%. For some goods and services, the tax rate is 14%, 8% and 3%.
Other taxes Social Contributions, Net Assets Tax, Inheritance and Gift Tax, Property Tax
Government fee No
Stamp duty 11.8%

International tax agreement

   


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TAXES

Personal tax

In general, resident individuals pay tax on worldwide income. Non-residents are taxed only on their Luxembourg-source income. An expatriate tax regime directed at highly skilled mobile employees came into effect on 1 January 2011. In order to benefit from the regime, a number of conditions must be met by the employer and the employee – doing so can result in significant tax savings. Income tax is charged on the following types of income:
  1. Income from trade or business - business income
  2. Professional income
  3. Agricultural income
  4. Self-employment income
  5. Employment income
  6. Pensions and annuities
  7. Investment income
  8. Income from letting and leasing
  9. Other income (including capital gains)

There are many allowances, deductions and exemptions, including child relief, deductions for employment-related expenses, deductions for interest payments, deductions related to share purchase, part exemptions on dividend income, etc.
Income tax bands and rates depend on family status, and are progressive to 39%. The income tax due is increased by a 4% contribution for the unemployment fund. Investment income in the form of dividends is subject to a 15% withholding tax. Short-term capital gains are taxed as current income. Long-term gains receive more favourable treatment: there is a EUR 50,000 exemption for gains realized in an 11-year period and the remainder is taxed at 50% of taxpayer’s global rate. Employment income is taxed at source through a monthly withholding tax applied by the employer, which additionally deals with social security contributions. All other types of income are declared on an annual tax return which is to be filed by 31st March of the year following the year being dealt with. Quarterly advance payments of tax are made on 10th of March, June, September and December, on the basis of one quarter of last year’s actual tax bill.

Corporate Taxation

Resident companies are subject to taxation on their worldwide income. Non-resident companies are subject to tax only on Luxembourg-source income. A corporate income tax rate is 26,01%. Companies with income above this threshold are taxed at 21%. In addition to corporate income tax, companies are subject to municipal business tax, which varies from 6% to 12% depending on the location. For the City of Luxembourg the rate is 6.75%. A deduction of EUR 17,000 applies to municipal business tax base for entities liable to corporate income tax and EUR 40,000 for other businesses. Also, all resident companies are subject to 0.5% net worth tax on their net operating assets (i.e., assets less liabilities).

Under the intellectual property (IP) regime, 80% of income from IP rights acquired or created by a Luxembourg company and gains of disposal of such rights, is exempt. The exemption is subject to the following conditions: IP rights must be acquired or created after 31 December 2007; expenses in direct economic connection with IP rights must be recorded as an asset in the balance sheet during the first year for which the exemption is claimed; IP rights were acquired from an unrelated company (related means having direct or indirect 10% participation).

As of 1 January 2011, a minimum flat tax of EUR 1,500 per annum was introduced for entities subject to corporate income tax, of which financial assets (including transferable securities, receivables, bank deposits, etc.) exceed 90% of their total assets. Entities performing activities that are subject to a business license or requiring the approval of a supervisory authority are, however, explicitly excluded from the scope of this flat tax (for example, investment funds). Where several Luxembourg companies form part of a fiscal unity, the flat tax will only apply once at the level of the integrating parent company (or the Luxembourg permanent establishment) heading the fiscal unity.

Capital gains tax

Capital gains are generally included in taxable income and taxed at the standard corporate tax rate. However, capital gains derived from sale of shares may be exempt from corporate income tax in certain cases.

VAT

VAT is levied on the supply of goods and services. The standard VAT rate is 15%, an intermediate rate of 12% applies to wines, advertising and printed marketing materials. A reduced rate of 6% applies to gas and electricity, and a special 3% rate printed materials, water, pharmaceuticals, most food products, and radio and television broadcasting services. Exports are zero-rated, so are certain services such as medical and health services, some financial services and leasing of immovable property.
The following must register for VAT:
  • any person established in Luxembourg who starts a taxable activity and expects annual turnover to exceed EUR 25,000;
  • any person who is not established or domiciled in Luxembourg, but who carries out transactions subject to VAT in Luxembourg such as the occasional and temporary provision of services, whatever the turnover;
  • any person who is taxable in principle but exempted from registration for VAT, as well as any legal person not subject to VAT who carries out intra-Community acquisitions of goods, for an annual amount exceeding EUR 10,000;
  • any taxable person, established in Luxembourg, who only carries out economic operations that do not give rise to a right of deduction and who purchases services from a taxable person established abroad, for which the service buyer is liable for tax;
  • any taxable person, established in Luxembourg, who only carries out economic operations that do not give rise to a right of deduction and who provides taxable services, in another EU Member State, for which the service buyer is liable for the tax;
  • any person established in Luxembourg, subject to the agricultural and forestry flat-rate taxation and who delivers alcoholic beverages or wood for an annual amount exceeding EUR 25,000;
  • any person established and registered for VAT in another EU Member State who carries out deliveries of goods, including the dispatch or transport, to persons not registered for VAT and established or domiciled in Luxembourg, for an annual amount exceeding EUR 100,000.

A taxpayer must file at least an annual VAT return based on its annual turnover, but also may be requested to file monthly or quarterly VAT returns (in addition to annual return).

Withholding tax

Dividends paid to a non-resident company are generally subject to a 15% withholding tax unless the rate is reduced under a tax treaty. No tax is withheld on dividends paid to a qualifying company under EC parent-subsidiary directive. Luxembourg has extended the benefits of the directive to parent companies resident in non-EU tax treaty countries provided conditions similar to those under the Luxembourg participation exemption are satisfied and the parent company is subject to a tax similar to the Luxembourg corporate income tax.
Luxembourg does not levy withholding tax on interest or royalties.

Stamp Duty

Registration duties are levied on a number of transactions which either must be registered (e.g. notary deeds and documents used in the framework of judicial proceedings in front of a court must be registered by law) or are voluntarily registered. The rates range from 0.6% to 11.8%

Other taxes

Real property tax Municipalities in Luxembourg impose a land tax of 0.7%-1% on the unitary value of real property. This is multiplied by coefficients fixed by each municipality and varying by the type of real property.
Transfer tax The transfer tax mainly concerns the transfer of immovable property. The basic rate is 6%, plus a 1% transcription tax (droit de transcription). For real estate located in the municipality of Luxembourg City, an additional charge amounting to 50% of the transfer tax is imposed. Exemptions are available.

Foreign exchange control

There is no foreign exchange control in Luxembourg.

Government fee

There is no annual government fee applicable in Luxembourg.

ACCOUNTS

Accounting records

A Luxembourg company must keep regular accounting records in accordance with Luxembourg commercial law and prepare annual accounts. The annual accounts may be represented in any currency and include a balance sheet, a profit and loss account and notes to the accounts. But, in practice, the amount of documents to be prepared and filed varies depending on the size of the company. A company may not exceed two of the three following thresholds:
Indicators small medium-sized
Balance sheet sum (mln EUR) up to EUR 3,125,000 up to EUR 12,500,000
Annual net turnover (mln EUR) up to EUR 6,250,000 up to EUR 25,000,000
Average number of employees up to 50 up to 150

Thus, small companies are only required to prepare and file a simplified balance sheet. Medium-sized companies may publish abridged balance sheet, and notes to the accounts need to include information on turnover and may group several items together under gross profit. The company which owns subsidiaries may be required to present consolidated accounts in application of the law of 11 July 1988 adopting the Seventh European Directive on consolidated accounts as domestic law. SA may have its accounts audited by an internal auditor (commissaire aux comptes) if it meets small company criteria. Sarl only needs to have the accounts audited by the internal auditor if it has more than 25 shareholders, but will also need an external professional auditor if it exceeds small company criteria. The annual accounts are subject to approval by the shareholder(s) at an annual general meeting. The annual accounts duly approved must within one month of such approval be lodged with the Register of Commerce and Companies together with annual reports and auditor’s report. They are then published in the Memorial, the publication is made by means of a reference to the lodgement of such documents at the Register of Commerce and Companies.

Annual Return

Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
  • Incorporation information (registration date, registered address);
  • Information about directors and their resignation;
  • Information about secretaries and their resignation;
  • Information about registered capital, nominal value of shares and amount of issued shares;
  • Information about shareholders and share transfer.

In Luxembourg companies are not obliged to prepare or file Annual Return.

    Taxes of Luxembourg

    Min. rate for corporate tax 24,94%
    Capital gains tax Regular rate
    VAT 17%
    Withholding tax 15%/0%/0%
    Exchange control No
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