Tax system

The Grand Duchy of Luxembourg is known worldwide for its liberal and pragmatic system based on stable legislation and politic ideas that create a favorable and attractive environment for foreign investors. The quality of a financial system based on appropriate and efficient management is another advantage for people who seek to set up their businesses or invest their assets in Luxembourg.

Corporate tax rates are based on:

  • corporate income tax
  • commercial income tax
  • fortune tax
  • other indirect taxes

Corporate Income Tax

All resident or foreign companies are subject to income tax. Resident companies are taxed on their global revenue, taking into account the various exemptions applicable under the European Treaty and the Double Tax Treaties between Luxembourg and a number of other countries.

Taxable revenue is calculated on the increase in a company’s net assets during the fiscal year after deduction of exempted revenues (e.g. Capital Gain taxes on participations, Tax exempted Dividends, Permanent Establishment in other countries, etc.). Income tax rate as of January 1, 2009 is 28.59%.

The distribution of dividends is added to the tax base and may be subject to a withholding tax depending on the beneficiary status (15% for individuals and can be reduced to zero if paid to a taxable treaty company). Double Tax Treaties allow certain reductions or exemptions (EC countries) on the distribution of dividends and a number of other countries.

Other EC Directive applies to the payment of interests and royalties as well with associated companies within Europe. Withholding taxes are not due on the payments of interests or dividends within Europe, provided they are paid within a group of companies. Withholding taxes on Royalties have been cancelled (for residents and non-residents).

Commercial Tax

This tax has been included in the 28.59% income tax rate since January 1, 2002. Fortune tax is calculated on Net Assets (Gross Fortune - debts - exemptions) as shown in the balance sheet at the end of the tax period. Significant participations are tax exempt. The rate is 0.5%

When a Company is formed, the subscription of its capital is not subject to any duty tax from 1st of January 2009 (replaced by a fixed capital duty of 75 Euros). The same is true for capital increase, whether in cash, in kind or for share premium.

Contribution in kind of real estate assets to companies are taxable at 1.1 % once remunerated by shares.

However, the Registration Tax applies when real estate changes ownership. In general, the proportional duty is due at the rate of 6% plus a Communal tax.

Below is a summary of Corporate Tax Rates (for resident companies – except Holding 1929 –SPF):

Summary of Corporate Tax Rates

Corporate Tax:28.59%
Fortune Tax:0.5%
Withholding Tax:Interests0%
Dividends0 to 15%
Royalties0 to 10%
Capital Duty:0%