TAX RATES > Luxembourg Tax Rates


Luxembourg Tax Rates

Luxembourg personal Income tax

Luxembourg personal income tax rates are progressive up to 38%. Income tax due is increased by a contribution of 2.5% for the employment fund, bringing the top marginal tax rate to 38.95%.

Taxable income (EUR)        Marginal Tax Rate
0 - 11,265                         0%
11,265 - 13,171                 8.20%
13,171 - 15,077                 marginal increase of 2.05% per slice of EUR 1,906
Above 39,885                    38.95%

Basis - Resident individuals are taxed on their worldwide income. Nonresidents are taxed only on Luxembourg-source income.

Residence - An individual is considered a resident of Luxembourg if his/her domicile or customary place of abode is in Luxembourg.

Tax Filing status - Married individuals are jointly taxable. As from tax year 2008, taxpayers may elect for joint taxation under the same conditions as apply to individuals linked by a legal partnership.

Taxable income - Luxembourg law distinguishes several categories of income, including income from employment, selfemployment and agriculture and business. Generally, losses from one category of income may be set off against income from another category in the same year. Investment income in the form of dividends is subject to a 15% withholding tax.

Capital gains - Short-term capital gains are taxed as current income (progressive rates up to 38%); long-term gains receive more favourable treatment, including an exemption of EUR 50,000 for gains realised in an 11-year period and taxation of the remaining long-term gains at one-half of the taxpayer's global rate. Gains derived by individuals from real estate are long term if the property was held for more than 2 years. Gains on an individual's private residence are normally exempt. Gains derived by an individual on shares are long term if the shares are held for more than 6 months and only taxable if the shareholding exceeds 10%. Gains on other movable assets are exempt if the holding period is more than 6 months.

Tax Deductions and tax allowances - Subject to certain restrictions, deductions are permitted for: insurance premiums for life, accident and sickness policies; individual pension schemes; alimony and annuities; childcare and housekeeping costs; charitable contributions; interest on personal and mortgage loans; and home saving and loan schemes. Allowances are granted for employment income, dividend and interest income and pension income. Single parents may benefit from an additional abatement.

Other taxes on individuals:

Capital duty - No

Stamp duty - Stamp duty is usually levied for the registration of notary deeds, bailiff deeds and some judiciary acts at varying rates.

Capital acquisitions tax - Certain gifts and donations must be registered (notably immovable property). The rates range from 1.8% to 14.4%, depending on the relationship between the donor and donee.

Real property tax - Municipalities in Luxembourg impose a land tax of 0.7%-1% on the unitary value of real property, including industrial plants. This is multiplied by coefficients fixed by each municipality and varies according to the type of real estate.

Inheritance/estate tax - To the extent the deceased was resident in Luxembourg at the time of his/her death, inheritance tax is levied in Luxembourg. The tax base is the market value of the entire net estate inheritance at the time of death. The rates range from 0% to 48%, depending on the proximity of the relationship and the amount of the assets bequeathed to each beneficiary. Exemptions are applicable in certain cases.

Net wealth/net worth tax - No

Social security - Social security contributions apply to wages and salaries and must be withheld by the employer at rates of 12.1% to 14.45%, depending on the nature and risk of employment activity. Self-employed individuals must register for social security purposes and pay rates at approximately the same combined rate as those for the employer and employees.

Administration and compliance:

Tax year - Calendar year

Tax Filing and tax payment - Tax returns are due by 31 March of the year following the tax year. The filing deadline may be extended at the taxpayer's request. Self-employed individuals must make quarterly prepayments of tax in amounts that are fixed by the tax authorities based on the most recent final assessment.

Penalties - Late payment of tax triggers an automatic default interest of 0.6% per month. Failure to submit a tax return or a late submission is subject to a penalty of 10% of tax due and a fine up to EUR 1239.47. If late payment is authorised by the tax authorities, such rate varies from 0% to 0.2% per month.


Luxembourg Corporate tax

A corporate income tax rate of 21% applies to companies whose taxable income exceeds EUR 15,000. Otherwise, companies are taxed at 20%. A municipal income tax also may be levied (see below under "Other"). A 4% contribution to the unemployment fund brings the top 21% tax rate to 21.84% in Luxembourg.

Regulated vehicles are either: (1) exempt from income tax (SIFs, UCIs), with a limited entitlement to tax treaty benefits (i.e. for corporate forms taking the form of a SICAV/F); or (2) fully taxable (SICAR, Securitization Companies), generally with full entitlement to benefits under tax treaties / EU Directives (to be determined on a case-bycase basis) and benefiting from a preferential tax regime, resulting in a low tax liability in practice.

Surtax - Corporate income tax is increased by a contribution of 4% to the unemployment fund.

Residence - Resident companies are defined for tax purposes as companies that have their legal seat or central administration in Luxembourg.

Basis - Residents are taxed on worldwide income. Nonresidents are taxed on Luxembourg-source income. Foreign-source income derived by residents is subject to corporation tax in the same way as Luxembourg-source income. Branches are taxed the same as subsidiaries.

Taxable income - Taxable income is calculated based on the profit as stated in the commercial balance sheet, plus certain adjustments provided for under the tax law (e.g. nondeductibility of taxes, exemption for dividends, etc.).

Taxation of dividends - Dividends received by resident companies are included in taxable income unless the participation exemption regime applies. A 15% withholding tax is levied on dividends distributed by Luxembourg companies, unless the conditions for application of the participation exemption are satisfied.

Capital gains - Capital gains are generally included in taxable income and taxed at the standard rates. However, capital gains derived from the sale of shares may be exempt from corporate income tax in certain cases.

Losses - Losses may be carried forward indefinitely. No carryback is allowed.

Alternative minimum tax - No

Foreign tax credit - Foreign tax paid may be credited against Luxembourg tax if the foreign tax is comparable to Luxembourg income tax. The credit is limited to the amount of Luxembourg income tax payable on the foreign income.

Participation exemption - Dividends and capital gains derived by a qualifying entity from a shareholding may be exempt from Luxembourg corporate income tax and municipal business tax if the entity deriving the income holds or commits to hold directly or indirectly the shareholding for an uninterrupted period of at least 12 months and the shareholding threshold does not fall below 10% or below an acquisition price of EUR 1.2 million (EUR 6 million for capital gains) throughout that period.

Holding company regime - A wealth management vehicle (SPF) succeeds the 1929 holding company that was repealed as from 1 January 2007, although existing entities benefit from a grandfathering clause until the end of 2010. SPF companies are exempt from income tax and withholding tax on dividend distributions.

Tax Incentives - A global investment tax credit of 6% of the acquisition value of investments made during the year is available, subject to a ceiling of EUR 150,000 and 2% on the balance. A supplementary investment tax credit of 12% of the acquisition value of qualifying investments made during the tax year is also available.

The IP box regime provides for an 80% exemption of net income and gains arising from the exploitation of IP (i.e. patents, trademarks, copyrights on software, designs, models and domain names) rights acquired or registered after 31 December 2007.

Withholding tax:

Dividends - Dividends paid to a nonresident company are generally subject to a 15% withholding tax unless the rate is reduced under a tax treaty. No tax is withheld on dividends paid to a qualifying company under the EC parent-subsidiary directive.

Luxembourg has extended the benefits of the directive to non-EU tax treaty country parent companies provided conditions similar to those under the Luxembourg participation exemption are satisfied and the parent is subject to a tax similar to the Luxembourg corporate income tax.

Interest - Luxembourg does not levy withholding tax on interest. However, profitsharing bonds and debt instruments with remuneration linked to the issuer's profits are taxed as dividends at the 15% rate.

Royalties - Luxembourg does not levy withholding tax on royalties.

Branch remittance tax - No

Other taxes on corporations:

Capital duty - No
Payroll tax - No

Real property tax - Municipalities in Luxembourg impose a land tax of 0.7%-1% on the unitary value of real property, including industrial plants. This is multiplied by coefficients fixed by each municipality and varying by the type of real property.

Social security - Employers make social security contributions (including pension, illness and accident insurance) on behalf of their employees at a total rate of 12.14%-19.07%, depending on the nature and risk of the employment activity.

Stamp duty - Stamp duty is usually levied at various rates on the registration of notary deeds, bailiff deeds and some judiciary acts.

Transfer tax - The transfer tax mainly concerns the transfer of immovable property. The basic rate is 6%, plus a 1% transcription tax. For real estate located in the municipality of Luxembourg, an additional charge amounting to 50% of the transfer tax is imposed. Some exemptions are available.

Other - A net worth tax of 0.5% on the adjusted net asset value of a company is imposed on taxpayers subject to corporate income taxes, but exemptions or a reduction of the tax are available. Other taxes include gift tax, customs duty, subscription tax and registration taxes (e.g. lease contracts and loan agreements). A municipal business tax may be imposed at rates varying from 6% to 12%, depending on where the undertaking is located.

Anti-avoidance rules:

Transfer pricing - Luxembourg does not have specific transfer pricing legislation, but it does require that transactions between related parties be on arm's length terms. If a transaction does not meet the arm's length standard, the tax authorities may adjust the taxable income and recharacterise the payment as a hidden contribution or hidden distribution.

Thin capitalisation - There is no specific legislation but, in practice, the tax administration uses a debt-to-equity ratio of 85:15 for the holding of participations.

Controlled foreign companies - No
Disclosure requirements - No

Administration and compliance:

Tax year - The tax year for a company is either the calendar year or the accounting year ending in a particular calendar year.

Consolidated tax returns - Fiscal consolidation is allowed for corporate and business tax purposes, but not for net worth tax purposes.

A fiscal unity may be formed only by a Luxembourg company, or a Luxembourg permanent establishment of a foreign company subject to tax corresponding to the Luxembourg corporate income tax and its wholly owned (at least 95%) Luxembourg subsidiaries.

Tax Filing requirements - Corporate income tax, net worth tax and business tax returns must be submitted before 31 May of the following tax year. This date may be extended upon request. Tax returns must be stated in terms of the euro.

As from 1 February 2010, the tax authorities can issue a tax assessment immediately upon receipt of the tax return and corresponding to the tax liabilities disclosed in the tax return to accelerate the tax assessment procedure. If no additional assessment is made before the expiration of a 5-year period, the initial tax assessment becomes final.

Tax Penalties - A 0.6% monthly interest charge applies for failure to pay or late payment of tax. Failure to submit the tax return or a late submission results in a penalty of 10% of the tax due and a fine up to EUR 1239.47. In the case of a late payment authorised by the tax authorities, the rate ranges from 0%-0.2% per month.

Rulings - A taxpayer may request an "Advance Tax Analysis", rather than a ruling.


Luxembourg vat (Value Added Tax)

The standard rate of VAT in Luxembourg is 15%. An intermediate rate of 12% applies to wines, or advertising and printed marketing materials. A reduced rate of 6% applies to gas and electricity, and a special 3% rate applies to printed materials, water, pharmaceuticals, most food products and radio and television broadcasting services. Exports are zero rated.

VAT is levied on the supply of goods and services. Exemptions include some financial, health and medical services and leasing of immovable property.

VAT Registration - The minimum registration threshold is EUR 10,000.

VAT Filing and VAT payment - A taxpayer must file at least an annual VAT return based on its annual turnover, but also may be requested to file monthly or quarterly VAT returns (in addition to the annual return).


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