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Tax Guide

Financial Year – 1 January to 31 December
Currency – Euro

Corporate Tax Summary

Residence – A corporate entity is deemed resident in Luxembourg for tax purposes when its (i) statutory seat or (ii) central administration is in Luxembourg.

In practice, a corporate entity’s tax residence may be questioned by Luxembourg or foreign tax authorities in the absence of substance. It is therefore important that certain substance requirements are met, and in particular that all key management decisions are taken in Luxembourg.

Basis of Taxation – A corporate entity that is tax resident in Luxembourg is subject to taxation on it’s worldwide income, except for income that is taxed in a country with which Luxembourg has concluded a tax treaty. A non-resident corporate entity is taxed in Luxembourg only on it’s Luxembourg source income e.g. if earned through a branch or permanent establishment.

There is no difference between resident and non-resident corporate tax rates.

Certain corporate entities benefit from a special tax dispensation, notably investment funds and family net wealth management companies.

Reference
Corporate Income Tax 24.94% The overall marginal tax rate is a combination of a corporate income tax (CIT) of 18.19 % (for income in excess of EUR 200,000), and a municipal business tax which varies (according to the location) between 6.75% and 10.5%. The overall marginal rate is 24.94% for Luxembourg City.
For income below EUR 200,000, a reduced CIT rate applies ranging from 16.05 % to 18.19 %.
Branch Tax 24.94% The tax rates for branches are identical to those applicable for companies.
Net Wealth Tax 0.5% Luxembourg corporate entities or Luxembourg branches of foreign companies are subject to Net Wealth Tax (NWT). However, certain corporate entities such as investment funds, are fully exempt.

The NWT calculation is based on the net asset value of the corporate entity as at 1 January every year. Assets and liabilities are usually valued as stated in the commercial accounts, but some exceptions exist. Certain assets and related liabilities are excluded from the NWT base, e.g. foreign real estate and qualifying investments, and related debts.

A minimum NWT applies, which ranges from EUR 535 to EUR 32,100 depending on the balance sheet total and asset composition.

Subscription Tax
  • Investment Funds
0.05% Investment Funds are exempt from normal income tax but are subject to an annual subscription tax of 0.05% on the net assets. The rate can be reduced to 0.01% under certain conditions.
  • Family Wealth Management Companies
0.25% The subscription tax for Family Wealth Management Companies is calculated on the amount of the issued capital and premium, as well as deemed excessive debts. A minimum tax of EUR 100 is levied and the maximum charge amounts to EUR 125,000 per year.
Withholding Tax Rate
Dividends 15% The standard withholding rate of 15% may be reduced in terms of a tax treaty. In addition, dividends may be totally exempt from withholding tax if paid to qualifying shareholders. The exemption in essence concerns taxable corporate shareholders that own 10% or more of the shares in the Luxembourg corporate entity.
Interest 0% No withholding tax is levied on interest paid to corporate entities.
Royalties from Intellectual Property 0%
Branch Remittance Tax 0%
Net Operating Losses (Years)
Carry-back 0
Carry-forward 17

Individual Tax Summary

Residence – Individuals are tax resident in Luxembourg if they have their (i) tax domicile or (ii) usual abode in Luxembourg. The tax domicile is the permanent place of residence. The usual abode refers to a situation where an individual resides in Luxembourg on a non-temporary basis. Luxembourg is considered as usual abode if an individual is continually present in Luxembourg for at least 6 months (which may overlap two calendar years). The nationality of a person is irrelevant when determining the tax residence.

Basis of Taxation – Resident individuals are subject to taxation on their worldwide income, except for income that is taxed in a country with which Luxembourg has concluded a tax treaty, such as income from real estate situated in a treaty country.

Non-resident individuals are taxed on Luxembourg source income only, which includes (list not exhaustive):

  • Profits from a commercial or professional business conducted in Luxembourg
  • Salary earned by employees who render their services in Luxembourg on a continual basis
  • Rent from real estate in Luxembourg
  • Dividends from Luxembourg companies (withholding tax only).

Filing Status – Married taxpayers usually file a joint tax return, but since 2018 spouses may also opt for separate taxation. Civil partners are normally taxed individually but may also elect to be assessed jointly. Non-resident married taxpayers or civil partners may opt to be taxed jointly in Luxembourg, subject to the condition that at least 90% of the worldwide income of at least one spouse is derived in Luxembourg.

Some taxpayers are not obliged to file an annual tax return e.g. individuals who have no income other than a salary or pension which is subject to a withholding tax, provided that the amount earned does not exceed a certain threshold.

Personal Income Tax Rates

Taxable Income Effective tax rate (including surcharge)
Single Couple
EUR 30,000 9.30 % 2.26 %
EUR 50,000 19.49 % 6.87 %
EUR 80,000 27.83 % 14.41 %
EUR 120,000 32.64 % 23.19 %
EUR 300,000 40.04 % 34.67 %
EUR 600,000 42.91 % 40.04%

The above table indicates the effective rate of tax on income earned by a single person and a couple for a sample of income levels. In some cases, the single tax rate tables may apply for non-resident, married taxpayers.

Income tax rates are progressive, varying from 0% to 42%. In addition, a surcharge for the Employment Fund of 7% (or 9% on income exceeding certain limits) is applied. The highest marginal tax rate is thus 45.78%. Capital gains realised on real estate and substantial shareholdings (> 10%) is taxed at half of the taxpayer’s ordinary tax rate (i.e. maximum rate of 22.89%).

Taxable income is also subject to an additional dependency contribution of 1.4%.

Value Added Tax (VAT)

Rate 17% (standard rate)
Taxable Transactions A natural or legal person who carries out transactions which are conducted independently and regularly as an economic activity, is normally subject to VAT. Transactions are normally in scope of VAT if they comprise one of the following :

  • Delivery of goods or services within the country
  • Intra-EU purchases of good and transport
  • Importation of goods from non-EU countries

The final VAT liability is determined after deducting the VAT paid on taxable goods and services received, subject to certain limits and exclusions.

Registration A taxable person who carries out taxable transactions and is established in Luxembourg, must register for VAT. A person who is not established in Luxembourg may sometimes be required to register in Luxembourg, notably when rendering taxable services related to buildings.

A taxable person who is established in Luxembourg but only provides exempt services, may still be required to register for VAT under certain conditions, notably if the person (i) receives taxable services from abroad or (ii) provides taxable services that are deemed to be rendered in another EU Member State.

A person registered for VAT in another EU Member State who sells goods to persons not registered for VAT in Luxembourg, should register in Luxembourg when the annual amount exceeds EUR 100,000.

Filing and Payment A person who is registered for VAT must file an annual VAT return after each calendar year. In addition, depending on the annual turnover, quarterly (turnover > EUR 112,000 p.a.) or monthly VAT returns (turnover > EUR 620,000) should also be filed.

The VAT liability as per the filed VAT returns should be settled before the statutory filings deadlines.

Other Taxes Payable

Tax Reference
Payroll Tax Payroll taxes are based on the general income tax rates. Therefore, if an employee has no other taxable income, nor tax deductible expenses, the payroll tax should be final.
Stamp Duty There is no stamp duty in Luxembourg. For real estate, an aggregate transfer tax of 7 % applies (10% for commercial properties in Luxembourg City).
Land Tax The Luxembourg land tax is based on real estate values in 1941 (even for new constructions). Therefore, the resulting tax charge, which depends on the location and the use of the property, is normally negligible.

Last updated: 30.10.2020

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Partner in Luxembourg
Phillip van der Westhuizen
Partner
Phone: +352 26 47 601