Bank Accounts website
Flag Theory website


We can help you incorporate in Luxembourg


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.

Corporate Income Tax rate – Companies with taxable income lower than EUR 175,000 are subject to corporate income tax at a rate of 15%. Companies with taxable income between EUR 175,000 and EUR 200,001 are subject to CIT computed as follows: EUR 26,250 plus 31% of the tax base above EUR 175,000.

The Corporate Income Tax rate is 17% for companies with taxable income in excess of EUR 200,001.

A 7% solidarity surtax is imposed on the corporate tax amount.

A municipal business tax also applies. The rate in Luxembourg city is 6.75%.

Therefore, for companies domiciled in Luxembourg City whose taxable income exceeds EUR 200,001, the overall effective tax rate is 24.94%.

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 taxes 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 resident employees’ salaries. Resident employees contributions range between 12.20% and 15%. Contributions are capped at certain amounts 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.


SPFs (Société de gestion de patrimoine familial, private wealth management companies) are treated as fiscally transparent entities for Luxembourg tax purposes, and are not subject to corporate taxes.
However, an SPF is subject to tax on capital (net wealth) - a 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. 
An SPF can only acquire, hold, manage and dispose of private liquid financial assets (e.g. shares, bonds, cash, investment funds, etc.), and not carry on any other activity or hold immovable properties, or any asset that is not considered a liquid financial asset. Specifically:
  • No provision of services, including the granting of interest-bearing loans; it may however make cash advances or guarantee the liabilities of an entity in which it holds a participation, but only in an incidental manner and free of charge;
  • No involvement in the management of the entities in which it holds a participation, even if the proportion of capital held by the SPF would form a majority and provide it with certain management rights. The related voting rights may be exercised, as long as this does not interfere with the above.
  • any type of commercial activity is prohibited (but the entities in which the SPF holds participations may freely perform commercial activities, subject to their own corporate purpose);
  • the direct holding of real estate or intellectual property is not permitted (but their indirect detention through other fiscally opaque entities is);
  • the SPF may also not enter into life insurance contracts.
For an SPF (Société de gestion de patrimoine familial) to benefit from tax transparency, it should be exclusively used by law for acquiring, managing, holding and disposing of financial instruments and cash.
Financial instruments are defined as -
  • all securities and other instruments, including, but not limited to shares in companies and other securities equivalent to shares in companies, participations in companies and units in collective investment undertakings, bonds and other forms of debt instruments, certificates of deposit, loan notes and payment instruments; 
  • securities which give the right to acquire shares, bonds or other securities by subscription, purchase or exchange;
  • instruments giving rise to a cash settlement (excluding instruments of payment), including money market instruments;
  • all other instruments evidencing ownership rights, claim rights or securities; 
  • all other instruments related to financial underlyings, indices, commodities, precious metals, produce, metals or merchandise, other goods or risks;
  • claims relating to the items described in the above or rights in or in respect of these items,
The company may not carry out any other activity.
Please note that SPFs are not eligible for benefits under double tax treaties signed by Luxembourg (e.g. reduced rates or exemptions from withholding taxes on dividends, interest and royalties paid by companies in foreign countries that have a double tax treaty with Luxembourg - to the Luxembourg company).


A Soparfi is used as a vehicle for the management and holding of financial participations in other local and foreign companies. 
Generally, the primary source of income from a Soparfi are dividends and capital gains.

Dividends and gains can be exempted from taxes if the Soparfi has directly or indirectly held participation of at least 10% of the share capital of the subsidiary or its acquisition price amounts to at least EUR 1.2 million (in case of dividends and liquidation proceeds) or EUR 6 million (in case of capital gains). There are other relevant requirements such as underlying subsidiaries to be domiciled in jurisdictions that are not tax havens.

An 85:15 debt-equity ratio is generally acceptable by the Luxembourg tax authorities for a shareholding activity. Within this limit, interests paid or accrued on debt are tax-deductible and interest payments do not suffer any Luxembourg withholding tax (unless EU Savings Directive applies).

A SOPARFI is also subject to Net wealth tax at the rate of 0.5% up to a tax base of EUR 500 million, assessed on its net asset value. Certain assets may be exempt from NWT. The minimum Net Wealth Tax is EUR 4,815, applicable to all SOPARFIs whose financial assets (participations, loans to affiliates, securities, cash) exceed 90% of their gross assets and EUR 350,000.

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
  • 24.94% Offshore Income Tax Rate
  • 24.94% 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

lb, German (Luxembourg), French (Luxembourg)

The Grand Duchy of Luxembourg is a small landlocked country located in Western Europe. Bordered by Belgium to the west, Germany to the east, and France to the south, Luxembourg is renowned for its strategic location and economic prowess.

Covering an area of approximately 2,586 square kilometers, Luxembourg is home to a population of around 634,000 people. The capital city is Luxembourg City, that is also the largest city in the country.

Luxembourg is one of the smallest sovereign nations in Europe, ranking after Vatican City and Monaco. The country has three official languages: French, German, and the national language Luxembourgish.

A constitutional monarchy, Luxembourg is led by a Grand Duke, currently Grand Duke Henri. The country's political structure involves a constitutional monarchy, where the Grand Duke shares sovereignty with the citizens who elect a parliamentary body known as the Chamber of Deputies. The political landscape is characterized by a stable and democratic governance system.

Luxembourg is not only a founding member of the European Union but also a member of the Schengen Area, fostering seamless travel within participating countries. Despite its EU membership, Luxembourg is not part of the Eurozone, as it has retained its national currency, the Luxembourgish franc, alongside the euro.

The nation's economy is highly developed and diverse, boasting the highest per capita income in the European Union. Known for its stability and robust financial sector, Luxembourg is a global financial hub. The country has a thriving industrial base that includes sectors such as steel, finance, and technology.

Luxembourg's economic success is underpinned by a combination of industrial exports, financial services, and tourism. The steel industry has historically been a cornerstone of the Luxembourgish economy, contributing significantly to its growth. Additionally, the country is a leading player in the financial services sector, specializing in providing financial services to foreign entities and wealth management for non-resident individuals.

The advantageous business environment, characterized by low taxes and favorable incorporation laws, has attracted numerous multinational corporations to establish a presence in Luxembourg. The nation's commitment to innovation and technology is reflected in its flourishing industries, encompassing telecommunications, information technology, and satellite services.

In terms of agriculture, Luxembourg engages in the cultivation of crops such as wheat, barley, and potatoes, as well as the production of dairy and livestock products. The country's wine industry also holds prominence, with Luxembourg producing high-quality wines from its vineyards.

Luxembourg's commitment to economic diversification, coupled with its strategic location and progressive policies, has positioned it as a global economic powerhouse despite its modest size. The Grand Duchy continues to thrive as a dynamic and forward-looking nation on the international stage.

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



We can help you incorporate a Société à responsabilité limitée in Luxembourg.
Please, contact us to request a free, no obligation consultation.


Although we use our best efforts to keep the information of this site accurate and up-to-date, we make no representations or warranties with respect to the accuracy, applicability, fitness, or completeness of the contents of this website. We disclaim any warranties expressed or implied, merchantability, or fitness for any particular purpose. We shall in no event be held liable for any loss or other damages, including but not limited to special, incidental, consequential, or other damages. The contents of this website are just for illustrative purposes and are NOT to be considered as a legal opinion or tax advice and should not be relied upon as such. Far Horizon Capital Inc., and any associated company, is not engaged in the practice of law or tax. If you wish to receive a legal opinion or tax advice on the matter(s) in this website please contact our offices and we will refer you to an appropriate legal practitioner. Use of our websites,,,, is subject to our terms and conditions.


Flag Theory is an internationalization and offshore solutions provider, and the creator of We offer expert consultation advice and assistance.

Your privacy is important for us and we will keep your information secure. View our privacy policy

View past newsletters

Consultation with

Flag Theory is an internationalization and offshore solutions provider, and the creator of

In order to better serve you, we ask that you please fill out the following form as accurately as you can and provide as many details as possible. Thank you.

Your privacy is important for us and we will keep your information secure. View our privacy policy