| Luxembourg Income tax Luxembourg Personal Income Tax rates for 2009:
Taxable Income / Marginal Rate
EUR 0 - 10,335: 0%
EUR 10,335 - 12,084: 8.20%
EUR 12,084 - 13,833: marginal increase of 2.05% per slice of EUR 1,749
Above EUR 36,570: 38.95%
Luxembourg tax system is based on marginally increasing rates. The tax rates quoted above include a 2.5% surcharge for the employment fund.
- Income from the sale of businesses, disposal of capital gains after six months of purchase, forestry income, indemnities for injuries, one off payment of (supplementary) pension benefits (entered into by employee): marginal rate equals half the tax rate on global income
- Forestry income due to force majeure, capital gains from real estate irrespective of date of purchase: marginal rate equals one quarter of the tax rate on global income (132.3, law 30.7.02).
The minimum tax rate for non-residents is 15% except for capital gains on real estate, where the rate for residents is applicable.
Resident individuals pay tax on their worldwide income. Individuals are deemed resident in Luxembourg if they have a residence or their customary place of abode is in Luxembourg. The latter is the case if the individual has been present in Luxembourg for more than six months. Non-resident individuals are only taxable on specific Luxembourg sourced income. In addition to the items listed for non-resident companies (cf. company tax) the following income is taxable:
- income from a salaried activity carried on in Luxembourg or if paid by the State
- income from pensions:
. if paid by the State or if former activity was carried on in Luxembourg
. if paid by a domestic organization
. if paid by a pension fund, provided that the contributions were deducted from income taxable in Luxembourg.
The tax base consists of assessable income less allowable deductions. Assessable income includes: business income, income from agriculture and forestry, self-employment, salaried activities, pensions, savings and securities, rental income and other income including capital gains.
With effect from 1 January 2008, an 80% exemption applies to the business income from IP, except copyrights (other than for software), plans, formulas, trade secrets and similar rights.
Interest earned by resident taxpayers is subject to a 10% final withholding tax.
The following capital gains are taxable:
- from any assets held less than six months prior to disposal
- from the sale of shareholdings in Luxembourg companies exceeding 10%
- from the sale of real estate located in Luxembourg, except the taxpayer's main residence.
Payment of tax: tax on salaries is withheld at source. Tax is fixed by assessment according to income sources and amounts. Taxpayers pay tax by quarterly installments based on income received during the last year of assessment.
Luxembourg Corporate taxThe general effective corporation tax rate for resident companies is 22.88%. This consists of corporate tax of 22% and a 4% surcharge for the employment fund. Companies with taxable income of not more than EUR 15,000 pay tax at 20% on income up to EUR 10,000 and 26% on any excess up to EUR 15,000. A bill of October 2008 proposes a reduction from 1 January 2009 of the corporate tax rate from 22% to 21% for companies with taxable income of at least EUR 15,001 and a tax rate of 20% for companies with taxable income of not more than EUR 15,000.
In addition, a municipal business tax is payable at rates which vary in different areas. The rate is 6.75% in the city of Luxembourg, producing a combined corporate tax rate of 29.63% (28.59% upon approval of the 2009 bill).
Luxembourg resident companies are subject to tax on their worldwide income. A company is deemed resident in Luxembourg if it has its corporate address or its central management in Luxembourg. Non-resident companies are only taxable on specific Luxembourg sourced income such as:
- income attributable to a permanent establishment located in Luxembourg
- income derived from 'ambulant' activities requiring a special license and carried on in the country (i.e. mobile activities such as hairdressing and the provision of fairground attractions)
- professional income from sports or cultural events taking place in the country
- income from agriculture or forestry carried on in the country
- income from professional services carried on in the country (i.e. doctors, solicitors, accountants)
- dividends, interest from profit sharing loans and interest from bonds if the paying agent is the State or a resident individual or company (exception: securitisation vehicles)
- interest from loans secured on Luxembourg real estate
- rental income from real estate or goods located in Luxembourg or recorded in a public domestic register (aeroplanes, ships, patents, copyrights, surface rights, emphythéoses, brands, cars) or used by a permanent establishment located in Luxembourg
- capital gains from the sale of real estate located in Luxembourg
- capital gains from the sale of shareholdings of 10% or more in resident companies (except SICARs):
. if acquired less than six months prior to disposal or
. if the seller was resident in Luxembourg for more than 15 years and became non resident less than five years prior to disposal.
Capital gains tax: Capital gains are in principle regarded as ordinary business income and are taxed at the normal corporate rate. Exemptions and roll-over relief apply in some cases.
Branch profits tax: Tax rates and measures apply in the same way as for Luxembourg corporations. No force of attraction rule is applicable.
Family Wealth Management Company (Société de Gestion de Patrimoine Familial (SPF): Further to the abolition of the 1929 holding company regime, a new investment vehicle for individuals was introduced in May 2007 in the form of an SPF. The SPF is exempt from corporate income tax, municipal business tax and net wealth tax, but subject to an annual subscription tax of 0.25% based on share capital and share premiums.
Soparfi (Société de Participations Financières): These are companies created to take advantage of the participation exemption in internal law (see taxation of capital gains and dividends).
Fiduciary (Fiducie): This is a legal framework for setting-up agreements to split beneficial ownership from legal ownership of assets. It is most commonly used for ensuring privacy and efficient management or transfer of assets.
Investment Fund: Approval for investment fund status is granted by the Commission de Surveillance du Secteur Financier ('the Regulator'). Investment funds are exempt from tax except for:
(a) a stamp duty on incorporation of EUR 1,250
(b) an annual subscription tax of 0.01% and 0.05% on the value of shares held by institutional investors or private investors respectively
(c) VAT on purchases and services not linked to the management of the fund.
Specialised Investment Fund (SIF) (Fonds D'investissements Spécialisés): The SIF has been available from February 2007. Compared to traditional investment funds, the SIF has greater flexibility with regard to investment policy and a more relaxed regulatory regime. There are no initiator / promoter requirements. SIFs are exempt from tax except:
(i) a stamp duty at incorporation on EUR 1,250
(ii) an annual subscription tax of 0.01% on the value of net assets of the SIF
(iii) VAT on purchases and services not linked to the management of the fund.
Securitisation Vehicle (Organisme de Titrisation): These were established from 2004 as a vehicle to transfer assets, liabilities and risks into transferable securities. The structure involves an originator, the vehicle and the investors. The originator transfers assets of any type (e.g. receivables, lorries, wine, real estate, rental income) to the vehicle, with or without a sale back agreement. The vehicle issues securities and uses the funds collected to pay for the purchase of the assets.
Two types of structures are available, both of which require approval by the Regulator:
(a) the securitisation fund, which follows the same rules as investment funds, except that no subscription tax is levied
(b) the securitisation company, which is a fully taxable entity that qualifies for the application of tax treaties and EU directives.
For securitisation companies, any commitments to investors or creditors, such as for paying dividends or interest, qualify as a deductible expense which leads, in most cases, to full tax neutralisation. They are exempt from net worth tax.
Venture Capital Fund (Société D'investissement À Capital Risque (Sicar): A specific vehicle was created in 2004 for collecting venture capital from professional or informed investors. The same rules for investment funds also apply to SICARs. SICARs may proceed with any investment with high-risk / increased return perspectives: no restrictions or ratios apply. SICARs are fully taxable entities and qualify for application of tax treaties and EU Directives. They are exempt from tax on any income from securities (dividends, capital gains) and from funds held for future eligible investments. Non-resident beneficiaries are exempt from tax in Luxembourg on income derived from these companies. Umbrella SICARs are able to create multiple investment compartments with specific investment policies.
Shipping Register: In addition to general incentive measures, shipping companies benefit from a lower corporate tax of 22.88% (expected to fall to 21.84% in 2009) and specific incentives and simplifications in respect to social security and wage tax.
Co-Ordination Centres, Multi-National Finance Companies: Under specific circumstances, it is possible for such companies to obtain advance rulings for various matters, including transfer pricing and finance margins.
Foreign tax relief: Foreign income tax may be credited against domestic income tax up to the amount of the domestic tax. If the foreign tax exceeds domestic tax, it is split into a tax credit and a tax deduction with the effect that no additional domestic tax will be due.
Withholding taxDividends: Dividends paid by special purpose vehicles such as SPFs, investment funds and SICARs are not subject to withholding tax. Dividends paid by a fully taxable company are subject to a 15% withholding tax, possibly reduced by applicable tax treaties. Dividends paid to companies that come under the scope of the EU Parent-Subsidiary directive are exempt from withholding tax.
A bill presented by the Luxembourg government on 1 October 2008 proposes to extend the domestic participation exemption on outbound dividends to taxable companies resident in treaty states.
Interest: Further to the entry into force of the EU Savings Directive (2003/48/EC) on 1 July 2005, interest paid to individuals resident in the EU is subject to a 15% withholding tax. Interest paid to Luxembourg residents is subject to a 10% final withholding tax.
Royalties: Luxembourg does not levy withholding tax on royalties. Resident recipients may offset withholding tax against income tax.
Value Added Tax (VAT)The standard VAT rate is 15%. The reduced rates are 3%, 6% and 12%.
VAT is applied on the supply of goods and services within Luxembourg and on the supply to non-VAT registered persons or entities within the EU.
Inheritance taxInheritance tax rates in Luxembourg vary according to the degree of relationship and value:
- Between spouses with / without living descendants: exempt/5%
- Between sisters and brothers: 6%
- Between uncles, aunts and nephews or nieces; between adopter and adoptee: 9%
- Between granduncles, grandaunts and grandnephews or grandnieces: 10%
- Between other relatives and non-related parties: 15%
Other taxesThere is no stamp duty on the transfer of shares or goodwill in Luxembourg. Other Luxembourg taxes include:
Net worth tax: (0.5% on business assets, after deductions, e.g. substantial shareholding). As an alternative to the net worth tax, companies may set up a net worth reserve equal to at least five times its net worth tax charge. Exemptions do apply (i.e. for intellectual property rights and substantial participations)
Subscription tax: chargeable only on holding companies and some investment funds: 0.2%, 0.05% and 0.01%
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