Country code – LU
Legal Basis – Civil law (Napoleonic)
Legal framework – Law of 10th August 1915 on commercial companies
Company form – Limited Liability Company (Société à responsabilité limitée, Sarl)
Liability - The liability of the partners of the company is limited to their capital contributed.
Share capital – The minimum capital of a Sarl is EUR 12,500. Upon incorporation, the capital must be fully paid up. Capital contributions may be made in cash or in kind. The company's capital is divided into registered shares. Each share is of the same value and each share will have a minimum value of 24.79 EUR. Shares may be transferred to non-shareholders only with the consent of the general meeting at which at least 75% of the company's capital must be represented.
Partners– A Sarl may be incorporated by two or more natural persons or legal entities, residents or non-residents, up to 100. The only document filed to register is a Memorandum of Association which does not contain the names of partners
Managers – At least 1 manager, who may be a natural or juristic person, resident or non-resident, without restrictions.
Secretary – The company may appoint a secretary, but it is not mandatory.
Registered Address – A company must have a registered office in Luxembourg.
General Meeting – Annual general meetings are required for companies with more than 60 partners. Otherwise, they are not required. The Articles of Association will specify the rules for calling and conducting meetings. Meetings can be held anywhere.
Electronic Signature – Permitted.
Re-domiciliation – Inward/outward re-domiciliation is not allowed.
Compliance – Companies are required to maintain accounting records and file financial reports with the RCS within seven months of the end of the financial year.
Companies with more than 60 partners must have mandatory supervision by at least one auditor designated in the Articles of Association.
Audits are required for companies having two consecutive years meeting two out of three following criteria: net turnover of 8.8 million Euro; balance sheet total of EUR 4.4 million; average staff of at least 50.
- Members not disclosed
- Managers not disclosed
- Corporate members permitted
- Corporate manager permitted
- Local manager required
- Registered office or agent required
- Annual meeting required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Civil law Legal basis
- 2 Minimum members
- EUR 12,500 Minimum registered capital
- EUR 12,500 Minimum paid up capital
- EURAny Capital currency
- 100% Foreign-ownership allowed
- 2017 AEOI
Tax residency – Companies registered in Luxembourg or its place of effective management in Luxembourg are deemed to be residents for tax purposes.
Basis – Corporate income tax is levied on worldwide income.
Tax rate – Companies are subject to a corporate tax of 18%, except companies whose annual taxable income does not exceed EUR 30,000 – which are subject to a reduced tax rate of 15%.
Capital gains – Capital gains are treated as ordinary income and taxed at the standard rate. However, capital gains derived from the sale of shares may be tax-exempt provided that the shareholding constitutes at least 10% of total ownership in the share capital or an acquisition price of at least EUR 6 million and the disposing company has held or intends to hold a qualifying shareholding for at least 12 months.
Dividends – Dividends received are subject to Corporate Income Tax.
A participation exemption may apply if the following conditions are met:
The distributing company is a collective entity falling within the scope of the EU Parent-Subsidiary Directive; or a Luxembourg resident corporation, which is fully taxable and does not take one of the forms listed in the LITL; or a non-resident corporation that is liable to at least 9% tax.
The beneficiary entity is a Luxembourg resident collective entity, which is fully taxable and takes one of the forms listed in the LITL; or a Luxembourg resident corporation, which is fully taxable and does not take one of the forms listed in the LITL; or a domestic PE of a collective entity falling within the scope of the EU Parent-Subsidiary Directive; or a domestic PE of a corporation that is resident in a country with which Luxembourg has concluded a DTT; or a domestic PE of a corporation or of a cooperative company, which is a resident of a European Economic Area (EEA) member state (other than an EU member state).
At the date on which the income is made available, the beneficiary has been holding or undertakes to hold for an uninterrupted period of at least 12 months, participation in the share capital of the subsidiary of at least 10% or with an acquisition price of at least EUR 1.2 million.
Interests – Interests are subject to corporate income tax.
Royalties – Royalties are generally subject to corporate income tax.
Withholding Taxes – Dividends paid to non-residents are subject to a 15% withholding tax unless the tax rate is reduced or exempted under a tax treaty. Generally, there are no withholding taxes on interest, royalties, and fees paid to non-residents.
Foreign-source income – Foreign-source income is taxable at standard rates unless is exempt by means of a DTA.
Profits of a foreign branch that are not exempt by means of a DTA may benefit from a foreign tax credit.
Losses – Losses arising from taxable income may be carried forward for 17 years. Carryback of losses is not allowed.
Inventory - Inventory may be valued at the lower of acquisition/production costs or market value. First in first out (FIFO), Last in first out (LIFO) or average cost methods are generally permitted.
Anti-avoidance rules – There is transfer pricing legislation in Luxembourg. Transactions between related entities have to be governed by OECD’s arm's-length principle.
There is no specific thin capitalization legislation. However, usually an 85:15 debt-to-equity ratio for the intra-group financing of participations applies. If the 85:15 ratio has not complied, the surplus of interest can be re-qualified as a hidden distribution of profits that would be non-deductible and potentially subject to a 15% withholding tax.
Luxembourg approved legislation that conscripts the EU Anti-Tax Avoidance Directive (ATAD 1) into domestic law in December 2018, and in force since January 1, 2019. Anti-avoidance measures adopted include a limitation of the deductibility of interests, controlled foreign company rules (CFC), among other measures such as adapting the general anti-abuse rules (GAAR) to EU standards.
The interest limitation rule provides that a given company is only able to deduct net interest expenses up to 30% of its EBITDA or up to EUR 3 mil, whichever is higher. This rule covers any financing transactions, regardless of whether is conducted with affiliates or with a third-party. Non-deductible interests can be carried forward.
Financial institutions, insurance companies, investment funds, and certain securitization vehicles, among others, are not subject to the interest limitation rule.
With respect to controlled foreign company (CFC) rules, Luxembourg will tax CFC undistributed income arising from ‘non-genuine’ arrangements to create a tax advantage. A CFC could be deemed to conduct a non-genuine arrangement if it would not own the assets or undertake the risks that generate its income if it were not controlled by the parent company which people is instrumental to generate CFC income.
CFC are foreign permanent establishments (PE) or subsidiaries which are taxed lower than 9% (50% of Luxembourg corporate tax), and where the Luxembourg parent entity together with any of its associate enterprises holds 50% or more interest (capital, right to receive income or voting rights). An associated enterprise is a company where the Luxembourg entity holds 25% or more interest.
CFC rules do not apply to subsidiaries or PE those with accounting profits of EUR 750,000 or less, or with profits that amount to no more than 10% of their operating costs.
Operating costs arising from goods sold out of the country where the subsidiary is resident and payments to associated enterprises are specifically excluded.
Labor taxes – Employers and employees are required to make contributions to several social security insurance funds.
Employers’ contribution is between 12% to 15% on employees’ salaries. Employees contributions range between 12.20% and 15%. Contributions are capped at EUR 119,915.16 (2018) and must be withheld by the employer.
Tax credits and incentives – There are tax incentives for capital investments. A tax credit is available that amounts to 13% of the increase in investments in tangible depreciable assets made during the tax year.
Additionally, a company may benefit from an 8% tax credit on the first EUR 150,000 of qualifying new investments and a 2% tax credit on the amount of new investments exceeding EUR 150,000 in tangible depreciable assets.
There is also an 80% income tax exemption on income derived from IP assets such as:
Inventions protected under patents, utility models, and other IP rights that are functionally equivalent to patents such as supplementary protection certificates for patents on pharmaceutical or phytopharmaceutical products, extensions to supplementary protection certificates to pediatric medicines, plant variety certificates, and orphan drug designations. Software protected by copyright under national or international norms.
Trademarks and other market-related IP are not eligible.
Companies innovating and involved in R&D activities can benefit from government loans and to the specific IP tax regime and general tax incentives.
Investment funds are usually exempt from corporate tax, municipal business tax and withholding tax.
Private Wealth Management Companies (SPF) are exempt from taxation on income and net wealth taxes in Luxembourg. A yearly subscription tax of 0.25% is applied on the paid-up capital, share premium, and excessive debts. Subscription tax, however, is capped at EUR 125,000. There is no withholding tax on dividends paid by an SPF.
Venture Capital Funds may benefit from an exemption on income and capital gain taxes from transferable securities qualifying as investments in risk capital, as well as income arising from investments in liquid assets pending their investment in risk capital for a maximum of 12 months.
Personal income tax – An individual is deemed to be tax resident in Luxembourg if he or she is domiciled in Luxembourg or his or her place of abode is in Luxembourg.
Resident individuals are taxed on their worldwide income.
Tax rates are progressive up to 42%. Income tax may be increased with a contribution of 7% to employment fund (9% for income exceeding EUR 100,000) and 1.4% on dependency contribution.
Short-term Capital Gains are considered ordinary income. Long-term gains (10 years) may benefit from exemptions of EUR 50,000 and a 50% exemption. Real estate gains are considered long-term if the property was held for at least 2 years. Gains derived from the sales of shares may be considered long-term capital gains if shares were held for more than 6 months, and are only taxable if the shareholding exceeds 10%.
Other taxes – There is a municipal business tax from 6% to 12%, depending on the location. There is also a net wealth tax of 0.5% on net assets up to EUR 500M and 0.05% over EUR 500M.
Transfer of immovable property is usually taxed at 6% plus 1% transcription tax. There is a land tax of 0.7% to 1% levied on real property.
The sale of goods and services are subject to V.A.T. at a standard rate of 17%. Reduced rates and exemptions may apply.
- Tax transparent entity
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 18% Offshore Income Tax Rate
- 18% Corporate Tax Rate
- 18% Capital Gains Tax Rate
- 18% Dividends Received
- 15% Dividends Withholding Tax Rate
- 0% Interests Withholding Tax Rate
- 0% Royalties Withholding Tax Rate
- 0 Losses carryback (years)
- 17 Losses carryforward (years)
- FIFOLIFOAverage cost Inventory methods permitted
- 55 Tax time (hours)
- 23 Tax payments per year
- 15% Social Security Employee
- 15% Social Security Employer
- 42% Personal Income Tax Rate
- 17% VAT Rate
- 80 Tax Treaties
Tax treaties Map
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