- Investment basics
Business entities – Public company (societe anonyme or SA), private limited company (Sarl), Societe par actions simplifies (SAS), partnership and branch of a foreign corporation.
- Corporate Taxation
Residence – A company is resident in Luxembourg it its registered office is locally situated.
Basis – Residents are taxed on worldwide income; non-residents are taxed only on Luxembourg source income. In the same way foreign source incomed derived from residents is taxed. Branches are taxed in the same way as subsidiaries.
Taxation of dividends – Dividends received by a resident company are included in taxable income, unless the participation exemption regime applies.
Taxable income – Is calculated based on the profit as stated in the commercial balance sheet.
Losses – Losses incurred up to the fiscal year that ended on 31 December 2016 may be carried forward indefinitely, but if incurred as from 2017 are restricted to a period of 17 years.
Capital gains – Are included in taxable income and taxed at the standard corporate tax rate. However, capital gains derived from the sale of shares may be exempt from corporate income tax in certain cases.
Rate – A corporate income tax rate of 19% applies to a company whose taxable income exceeds EUR 30,000 (as from 2018 will be 18%). A rate of 15% applies if annual taxable income does not exceed EUR 25,000.
Surtax – Corporate income tax is increased by a contribution of 7% to the unemployment fund.
Foreign tax credit – When paid may be credited against Luxembourg tax if the foreign tax is comparable to Luxembourg corporate income tax.
Incentives – A global investment tax credit is available for 8% of the acquisition value of the first EUR 150,000 of investments made during the year, and 2% of the excess over ER 150,000.
IP rights introduced before 1 July 2016 are benefited from the regime until 30 June 2021.
- Withholding tax
Dividends – Dividends paid to non-resident company are generally subject to withholding tax at 15%, unless the rate is reduced under a tax treaty. No tax is withheld on dividends paid to a qualifying company under the UE parent-subsidiary directive.
Interest – Luxembourg does not levy withholding tax on interest. However, profit sharing bonds and debt instruments with remuneration linked to the issuer’s profits are taxed as dividends at a 15% rate.
Royalties – Luxembourg does not levy withholding tax on royalties.
- Other taxes on corporations
Capital duty – No. A Registration fee of EUR 75 is imposed on incorporation or amendments to bylaws.
Property tax – A land tax on 0.7% is to 1% is imposed to unitary value of real property, including industrial plants.
Social security – Employers must make social security contributions on behalf of their employees at a total rate of 12.42% to 15.08%.
Stamp duty – is levied at various rates on the registration of notary deeds, bailiff deeds and certain acts of the judiciary.
Transfer tax – is mainly applicable to the transfer of immovable property. The basic rate is 6% plus a 1% transcription tax.
- Anti-avoidance rules
Transfer pricing – Transactions between related parties are required to be conducted on arm’s length terms. The tax authorities can request documents to investigate transactions with related parties.
New tax measures are in force to support Luxembourg as a prime financial center, including new guidance and clarification on transfer pricing regulations inspired by the OECD Transfer Pricing Guidelines for Luxembourg entities engaged in intra-group financing activities.
A company may request an advance pricing agreement from the Luxembourg tax authorities.
Thin capitalization – There is no specific legislation but the tax administration uses a debt-to-equity ratio of 85:15 for the financing of participations.
Disclosure requirement – Country-by-country reporting, in line with the OECD’s BEPS action is required for fiscal years commencing as from 1 January 2016.
- Compliance for corporations
Tax year – The tax year of a company is either the calendar year of the company’s accounting year ending in a particular calendar year.
Consolidated returns – Fiscal consolidation is allowed for corporate and municipal business tax purposes, but not for net worth tax purposes, except for the minimum net worth tax.
Filing requirements – Corporate income tax, net worth tax and municipal business tax returns must be submitted before 31 May of the following tax year. Capital companies (SASs, Sarls and partnerships limited by shares) may be entitled to self-assessment. A 0.6% monthly interest charge applies for failure to pay or for late payment of tax.
Rulings – A corporate taxpayer may request an advance tax decision from the Luxembourg tax authorities. An administrative fee will apply
- Personal taxation
Basis – Resident individuals are taxed on their worldwide income, whereas non-residents are taxed on local source income.
Residence – An individual is considered a resident of Luxembourg if he/she is domiciled in Luxembourg.
Filing Status – Married individuals are jointly taxable. As from 2017, separate taxation for married taxpayers will be allowed under certain conditions.
Taxable income – the law distinguishes several categories of income, including income from employment, self-employment, agriculture and business. Investment income in form or dividends is subject to withholding tax.
Capital gains – Short term capital gains are taxed as current income; long term gains receive more favorable treatment, including an exemption of EUR 50,000 for gains realized in a 10 year period and taxation of the remaining long-term gains at 50% of the taxpayer’s global rate. Long terms rates are the ones derived from real estate if the property was held form more than two years. Gains on an individual’s private residence normally are exempt. Gains derived by an individual on shares are long-term if the shares were held for more than six months and are taxable only if the shareholding exceeds 10%.
- Other taxes on individuals
Stamp duty – is usually levied on the registration of notary deeds, bailiff deeds and certain acts of the judiciary.
Capital acquisitions tax – Certain gifts and donations must be registered. The rates range from 1.8% to 14.4% depending on the relationship between the donor and donee.
Inheritance tax – inheritance tax is levied in Luxembourg. The tax base is the market value of the entire net estate inheritance at the time of death.
- Compliance for individuals
Tax Year – Calendar year
Filing and payment – Tax returns are due by 31 March of the year following the tax year. The filing deadline may be extended at the taxpayer’s request. Late payments of tax are charged with automatic default interest of 0.6% per month.
Taxable transactions – VAT is levied on the supply of goods and services.
Rates – The standard rate is 17%. VAT exemptions may apply to certain services, including some financial, health and medical services and leasing of immovable property.
Registration – Taxpayers must be VAT registered.
Filing and payment – A taxpayer must file one annual VAT return. Based on annual turnover, taxpayers also may be requested to file monthly or quarterly VAT returns, in addition to the annual return.
Taxpayers with an annual turnover of less than EUR 30,000 benefit from a VAT franchise regime however are obliged to register for VAT and file an annual VAT return.
Luxembourg has 77 effective tax treaties