Taxation Overview

Corporate Income Tax

Corporate income tax applies to all resident companies and to Luxembourg permanent establishments of foreign companies. Resident taxpayers are liable to tax on their world-wide income, unless income is exempted under the provisions of applicable double tax treaties. Non-resident taxpayers are liable to tax only on their Luxembourg sourced income. A company is considered to be a resident tax payer if its place of management is located in Luxembourg.

Businesses with taxable income lower than 175,000 euros (EUR) are subject to CIT at a rate of 15%. Businesses 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 CIT rate is 17% for companies with taxable income in excess of EUR 200,001 leading to an overall tax rate of 24.94% in Luxembourg City (taking into account the solidarity surtax of 7% on the CIT rate, and including the 6.75% municipal business tax rate applicable).

The CIT does not apply to tax-transparent entities (e.g. general or limited partnerships or European Economic Interest Groupings) unless they are subject to the reverse hybrid rules.

Although there used to be a minimum CIT for Luxembourg resident companies, no such minimum CIT is applicable as of 2016. It has been replaced by a minimum net wealth tax.

Solidarity surtax

A 7% solidarity surtax is imposed on the CIT amount.

Taking into account the solidarity surtax, the aggregate CIT rate is 18.19% for companies with taxable income in excess of EUR 200,001.

Municipal business tax on income

Municipal business tax is levied by the communes and varies from municipality to municipality. The municipal business tax for Luxembourg City is 6.75%.

The effective combined CIT rate (i.e. CIT, solidarity surtax, and municipal business tax) for Luxembourg City is 24.94%.

Withholding Tax

Dividends paid to a resident individual are subject to a 15% withholding tax (see also “Rates” under “Individual taxation,” above). Dividends paid to a nonresident company or individual generally are subject to a 15% withholding tax, unless the rate is reduced under a tax treaty.

Net wealth tax

Net wealth tax is levied annually on total gross assets reduced by the debts of the companies. The actual net worth tax rate is 0.5%.

Capital duty

When a company is formed, the subscription of its capital is subject to a duty tax equal to 1% of the capital. The same is true for capital increase, whether in cash, in kind or for share premium.

Value-added tax (VAT)

Supplies of goods and services, which are deemed to take place in Luxembourg, are subject to VAT at the standard rate of 17% (lowest standard VAT rate in the European Union) or, on certain transactions, at 14% (e.g. certain wines, advertising pamphlets, management and safekeeping of securities), 8% (e.g. supply of gas or electricity), or 3% (e.g. food [except most alcohol beverages]; pharmaceutical products; books [including e-books since the Circular n°793 released by the Luxembourg VAT authorities of 17 May 2019]; radio and television broadcasting services [except adult entertainment]; shoes, accessories, and clothes designed for children under the age of 14). As from 1st January 2023 and until 31st December 2023, the standard rate, intermediary rate and reduced rate will decrease by 1% to respectively 16%, 13% and 7%.

Luxembourg resident taxable persons are, in principle, required to be registered for VAT. However, taxable persons carrying on exclusively VAT-exempt activities and who do not have any right to recover input VAT are not required to register for VAT unless they are liable to self-assess VAT on good/services required from abroad. If so, they may be subject to simplified VAT compliance obligations.

Double Tax Treaties

Luxembourg has signed 86 DTTs, most of which include provisions of article 26.5 of the Organisation for Economic and Co-operation Development (OECD) model agreement on exchange of information between tax authorities.

Foreign tax relief – Foreign income received by residents that is subject to a tax equivalent to Luxembourg income tax and is not exempted by a DTT is granted a tax credit; any non-imputable tax in excess is deductible as a tax-deductible expense.

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