Luxembourg tax system: audit, reporting and optimization of taxation of Luxembourg companies and individuals: VAT, income tax and capital gains

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

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, Viet nam
   


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Personal income tax

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 8% to 42%. The income scale is very fractional and has 23 positions. The first EUR 11,265 is exempt; the maximum rate of 42% applies to income over EUR 200,000.

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. As a result, the total tax rate (including the solidarity tax) ranges from 0% to 45.78%.

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.

Corporate income 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:

  • Requirements for the company distributing dividends: qualifying EU companies, taxable Luxembourg companies, foreign companies taxed with corporate income tax, as a general rule, at least at 8.5% rate.
  • Holding at least 10% participation or participation with the acquisition price of at least EUR 1.2 million for at least 12 months.
  • Dividends must not be tax deductible at the level of the distributing party.

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 million, 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.

CFC rules

A foreign company is considered a controlled foreign company if:

  • A taxpayer, directly or indirectly, individually or jointly with related parties, holds more than 50% of the capital or voting rights in, or rights to more than 50% of profits of, a foreign company.
  • The foreign company is taxed at the effective rate of less than 50% of the corporate income tax that would be paid in Luxembourg in a similar situation.

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.

Withholding tax

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 1.2 million 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.

VAT

The standard VAT rate is 17%.

The rates for certain goods and services are 14%, 8% and 3%.

Social security contributions

For employees, there are compulsory social contributions withheld by employers:

  • Sick leave fund – 3.05%.
  • Pension fund – 8%.

Net wealth tax

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.

Registration duty

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.

Inheritance and gift tax

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 tax

Property taxes are levied at the level of municipalities, the tax liability depends on the value, category, and location of the property.

Double taxation treaties

Luxembourg has entered into the following tax information exchange arrangements:

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.

Exchange control

No exchange control.

    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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