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Luxembourg

Société à responsabilité limitée (Limited Liability Company)

Taxes

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, a 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 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 a 85:15 debt-to-equity ratio for the intra-group financing of participations applies. If the 85:15 ratio is 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.

There are no controlled foreign companies rules in Luxembourg

Labor taxes – Employers and employees are required to make contribution 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 a 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 phyto-pharmaceutical products, extensions to supplementary protection certificates to paediatric 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 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

Country details

Luxembourg
EUR
Luxembourg
Europe
l b , d e - L U , f r - L U
497538

Tax treaties

Country Type Date Signed
Lao People's Democratic Republic DTC  2012-11-04
Italy DTC  1981-06-03
Finland DTC  1982-03-01
India DTC  2008-06-02
Sierra Leone DTC  2013-10-09
Romania DTC  1993-12-14
United Arab Emirates DTC  2005-11-20
Slovenia DTC  2001-04-02
Poland DTC  1995-06-14
Portugal DTC  1999-05-25
Hong Kong, China DTC  2007-11-02
Brazil DTC  1978-11-08
Morocco DTC  1980-12-19
Russian Federation DTC  1993-06-28
Chinese Taipei DTC  2011-12-19
Canada DTC  1999-09-10
Moldova, Republic of DTC  2007-07-11
Uruguay DTC  2015-03-10
Turkey DTC  2003-06-09
Albania DTC  2009-01-14
Indonesia DTC  1993-01-14
Spain DTC  1986-06-03
Israel DTC  2004-12-13
Liechtenstein DTC  2009-08-26
San Marino DTC  2006-03-27
United Kingdom DTC  1967-05-24
Mongolia DTC  1998-06-05
Kuwait DTC  2007-12-11
Bahrain DTC  2009-05-06
Panama DTC  2010-10-07
Monaco DTC  2009-07-27
Sweden DTC  1996-10-14
United States DTC  1996-04-03
Azerbaijan DTC  2006-06-16
Mauritius DTC  1995-02-15
Latvia DTC  2004-06-14
Ukraine DTC  1997-09-06
Lithuania DTC  2004-11-22
Japan DTC  1992-03-05
Qatar DTC  2009-07-03
Switzerland DTC  1993-01-21
Mexico DTC  2001-02-07
Tunisia DTC  1996-03-27
South Africa DTC  1998-11-23
Former Yugoslav Republic of Macedonia DTC  2012-05-16
Isle of Man DTC  2013-04-08
France DTC  2006-11-24
Germany DTC  2012-04-23
Belgium DTC  1970-09-17
Czech Republic DTC  1991-03-18
Thailand DTC  1996-05-06
Saudi Arabia DTC  2013-05-07
Viet nam DTC  1996-03-04
Armenia DTC  2009-06-23
Seychelles DTC  2012-06-04
Slovakia DTC  1991-03-18
China DTC  1994-03-12
Barbados DTC  2009-12-01
Sri Lanka DTC  2013-01-30
Malaysia DTC  2002-11-21
Tajikistan DTC  2011-06-09
Uzbekistan DTC  1997-07-02
Denmark DTC  1980-11-17
Iceland DTC  1999-10-04
Korea, Republic of DTC  1984-11-07
Bulgaria DTC  1992-01-27
Estonia DTC  2006-05-23
Guernsey DTC  2013-05-10
Trinidad and Tobago DTC  2001-05-07
Austria DTC  1962-10-18
Hungary DTC  1990-01-15
Greece DTC  1991-11-22
Norway DTC  1983-05-06
Netherlands DTC  1968-05-08
Singapore DTC  1993-03-06
Jersey DTC  2013-04-17
Kazakhstan DTC  2008-06-26
Malta DTC  1994-04-29
Georgia DTC  2007-10-15
Ireland DTC  1972-01-14

Tax treaties Map

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