Luxembourg

Last modified: 03/02/2025 09:25

Corporate taxation

	Rate
Corporate income tax rate   (1)	14,98% – 17,12% (7% solidarity surcharge included)     (2)
Branch tax rate	14,98% – 17,12% (7% solidarity surcharge included)     (2)
Capital gains tax rate	0% / maximum 17,12% (3)

1. Municipal business tax always applies in addition to corporate income tax (see below “significant local taxes”).
2. For taxable income of more than EUR 200 000, the CIT rate is 17,12%.
3. Capital gains from investments of more than 10% in a taxable company (or EUR 6 Mio) held for at least 1 year are tax exempt

Residence: A company is resident in Luxembourg if it has its place of management or statutory seat in Luxembourg.

Basis: Resident companies are taxed on their worldwide income, unless otherwise provided by a tax treaty. Non-resident companies are subject to income tax only on Luxembourg-source income.

Taxable income: Taxable income is based on the annual financial accounts. For tax purposes, financial statement profits are adjusted by adding back all non-deductible expenses (e.g. non-deductible taxes, directors’ fees, excessive depreciation, …) and by deducting exempt income (e.g. as per a double tax treaty or the participation exemption) as well as trading losses carried forward.

Significant local taxes on income: Luxembourg levies an annual Municipal Business Tax on the net profit realised by Luxembourg companies. The rates vary depending on the municipality in which the company’s statutory seat is located. In Luxembourg City, this rate is 6,75%. Thus the combined effective tax rate on income amounts to maximum 23,87% for a company established in Luxembourg City.

Alternative minimum tax: No

Taxation of dividends: Dividends received by a Luxembourg company should, in principle, be subject to income tax. However, under domestic tax law, dividends are tax exempt provided the following conditions are met: – the subsidiaries are fully taxable companies (minimum of income tax of 9%), – the participation in the subsidiaries is of at least 10% or of an acquisition price of at least EUR 1 200 000 – at the time of distribution , the beneficiary holds or commits to hold the participation for an uninterrupted period of at least 12 months. As of 2025, taxpayers can choose to waive the exemption on dividends, provided the exemption only results from the acquisition cost of at least EUR 1 200 000 and not from the participation of at least 10%. This option gives greater flexibility to companies that may have a particular interest in making use of their carried-forward tax losses rather than automatically benefiting from the exemption.

Capital gains: Capital gains are generally subject to income tax at the standard rate. However, capital gains derived from the sale of qualifying participations are tax exempt under the same conditions as those for the dividends exemption except that the holding must have an acquisition price of at least EUR 6 000 000 or represent at least 10%. As of 2025, taxpayers can also choose to waive the exemption on capital gains, provided the exemption only results from the acquisition cost of at least EUR 6 000 000 and not from the participation rate of at least 10%.

Losses: Tax losses can be carried forward for 17 years ( losses incurred prior to January 1, 2017, may be carried forward indefinitely). No carry-back is allowed.

Foreign tax relief: Foreign source income is taxable in Luxembourg, unless a double tax treaty provides for an exemption. Luxembourg generally uses the credit method regarding dividends, interest and royalties.

Participation exemption: See above under ‘Taxation of dividends ‘ and ‘Capital gains’ With effect to January 1, 2016, the Luxembourg participation exemption has been modified in order to comply with the general anti-abuse and anti-hybrid rules. So, profit distributions that fall within the scope of the participation exemption regime are not tax exempt in Luxembourg if : – such distributions are deductible by the distributing company located in another EU Member State (anti-hybrid rule), – the transaction is considered to be abusive in the meaning of the Parent-Subsidiary Directive (anti-abuse rule). In this respect, a transaction may be considered to be abusive if it is an arrangement that is not genuine (not put in place for valid commercial reasons reflecting economic reality) and if it has been put in place to obtain, as one of the main purposes, a tax advantage that defeats the objective of the Parent-Subsidiary Directive.

Holding-company regime: No specific holding company regime is available.

Tax-based incentives: – IP regime : provides for an 80% exemption on net income derived from eligible patents and copyrighted software. – Tax credit for investment – Tax credit for hiring unemployed persons

Group relief/fiscal unity: Luxembourg companies of the same group are allowed , under certain conditions, to choose to be taxed as a consolidated group. The whole group is then taxed as if it were one company. This allows losses made by a company of the group to be offset against profits of other group companies.

Small company/alternative tax regimes: None

Corporate taxation: compliance

Tax year: Accounting period (cannot exceed 12 months).

Consolidated returns: Not applicable for corporate tax purposes. In case of fiscal consolidation of a group of Luxembourg companies, each Luxembourg company has to file its own tax return.

Filing and payment: An annual corporate tax return (including corporate income tax, municipal business tax and net wealth tax) must be filed electronically by 31 December of the year following the relevant tax year. Tax prepayments are to be made on a quarterly basis. These payments are based on the latest tax assessment . Final (balancing) payments are due within 1 month after the receipt of the tax assessement .

Penalties: In case of late payment, a penalty of 0,6% interest per month is charged on the tax due.

Rulings: A taxpayer may apply for an advance tax ruling on the tax consequences of a proposed transaction . An administrative fee may apply.

Taxation of individuals

EUR	Rate (1)
Up to 13 230  (2)	0%
Gradually increases 13 230 – 117 450	8% – 39%
117 450 – 176 160	40%
176 160 – 234 870as of 234 870	41%42%  (3)

1. Surcharge for unemployment fund of 7% for income not exceeding EUR 150 000 (EUR 300 000 for couples taxed jointly) and of 9% for income exceeding these amounts.
2. Exempt tax band for single taxpayers . For couples taxed jointly, the exempt tax band is EUR 26 650.
3. Marginal tax rate for single taxpayers. For couples taxed jointly, the marginal tax rate applies as from EUR 469.750.

Residence: Individuals are considered resident in Luxembourg if their domicile or customary place of abode is in Luxembourg or if they are present in Luxembourg for an uninterrupted period of more than 6 months (this period can overlap 2 calendar years ).

Basis: Resident individuals are taxed on their worldwide income unless otherwise provided by tax treaties. Non residents are subject to tax only on their Luxembourg-source income. However, they can opt to be taxed as a Luxembourg resident provided at least 90% of their professional income is derived from Luxembourg sources (50% for Belgian residents ).

Taxable income: Taxable income covers employment income, self-employment income, trade and business income, agricultural and forestry income, pensions and annuities, dividends and interest, capital gains, rental income.

Capital gains: Capital gains are taxed at the standard income tax rate if they arise from real estate held less than 2 years or from movable property held less than 6 months. Capital gains from real estate held for more than 2 years and capital gains realized on disposals of participations of more than 10% held for a period of more than 6 months are taxed at 50% of the global tax rate (maximum 22,89%). A standard exemption of EUR 50 000 applies to long term taxable gains (EUR 100 000 for couples taxed jointly) . This allowance is available every ten years. The sale of a taxpayer’s principal place of residence is not taxed.

Deductions and allowances: Various expenses may be deducted in computing taxable income , including social security contribution, contribution to individual pension schemes, alimonies, charitable contribution, insurance premiums, home savings schemes, debit and mortgage interest, childcare and housekeeping cost.

Foreign tax relief: If a double tax treaty exists, double taxation is generally avoided by way of an exemption method with a progressivity clause. The foreign income is included into the Luxembourg tax base in order to determine the global tax rate. Luxembourg generally uses the credit method regarding dividends, interest and royalties.

Taxation of individuals: compliance

Tax year: The tax year corresponds to the calendar year .

Filing and payment: An annual tax return must be filed by 31 December following the end of the tax year. After reviewing tax returns, the tax office issues formal assessment notice to the taxpayers. Taxes withheld at source from individuals’ income, as well as prepayments, are deducted from the tax assessed. Payment is generally due within one month of receipt of the assessement notice.

Penalties: In case of late payment, a penalty of 0,6% interest per month is charged on the tax due. In addition , tax authorities may charge a penalty equal to 10% of the tax due for late filing of the returns.

Rulings: An advance ruling on the tax consequences of a proposed transaction may be obtained from the tax authorities . Administrative fees apply.

Withholding taxes

Type of Payment	Resident recipients		Non-resident recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividends *)	0% – 15%	15%	0% -15%	15%
Interest	0%	20%	0%	0%
Royalties	0%	0%	0%	0%
Capital gains	0%	0%	0%	0%

*) may be reduced by tax treaty or Parent/Subsidiary Directive

There is no withholding tax on liquidation proceeds. 

Branch remittance tax: None

Anti-avoidance legislation

Transfer pricing: Luxembourg’s transfer pricing rules are based on the OECD’s arm’s length principle, which requires transactions between related parties to be priced as if they were between unrelated parties under comparable circumstances. This principle is enshrined in article 56 of the Luxembourg Income Tax Law (LITL): “entities that are related via management, control or capital in their controlled transactions should agree the same terms and conditions which would have been agreed between non-related entities for comparable uncontrolled transactions”. Article 56bis LITL complements the article 56 LITL by providing a detailed framework for applying the arm’s length principle in transfer pricing analysis. Article 56bis L.I.R. focuses on the comparability analysis, which is crucial for determining the arm’s length price. It incorporates new elements to consider in the comparability analysis, reflecting the conclusions drawn from the BEPS 8-10 actions into domestic legislation.

This article also implements Chapters 2 and 3 of the OECD Transfer Pricing Guidelines, which outline the various techniques and methods to be used in transfer pricing analysis. The introduction of these articles foresees requirements for taxpayers namely the one of having a proper transfer pricing documentation justifying the remuneration on intra-group financing activities. Moreover, Luxembourg entities engaged in intra-group financing transactions have to comply with certain substance and equity risk requirements. In case of absence of appropriate transfer pricing documentation, the Luxembourg tax authorities may than look to the underlying economic reality of the operations and might presume that there has been an unjustified reduction of profits.

The absence of a proper transfer pricing documentation could shift the burden of proof to the taxpayer. More globally, any intra-group transactions (like intragroup re-invoicing or royalties received from group entity for instance) should satisfy the arm’s length principle. The article 56 LITL allows the Luxembourg tax authorities to make upward and downward adjustments of profits for transfer pricing purposes if the arm’s length principle is not respected. A transfer pricing directive was extensively discussed during 2024 but at this stage the majority of the European countries have not seen the possibility to progress further on the proposal. The concerns turn around the fact there is a risk of creating a double standard in the field of transfer pricing i.e. at the OECD level and at the EU level.

Interest restriction:  Anti-Tax avoidance Directive 1 “ATAD1” ATAD 1 European union dispositions covering interest limitations were transposed into the domestic law through the article 168bis of the Luxembourg Income Tax Law (’LITL’). The article 168 bis LITL was applicable in Luxembourg as of tax year 2019 and can be summarized as such: “The net annual interest expense deduction for resident companies and domestic permanent establishment is limited to a maximum of either 30% of the taxpayer’s earnings before interest, tax, depreciation and amortization (EBITDA) or EUR 3 mio”. Exceeding borrowing cost may be carried forward without limitation in time and unused interest capacity may be carried forward for up to 5 years. However, loan concluded before June 17, 2016 should not be impacted by interest limitations to the extent that their terms are not subsequently modified. This is what is called the “grand fathering” clause.

A recent bill of law, approved in December 2024, introduced the concept of “single-entity group” for the purposes of interest limitation rules. Single-entity groups (i.e. entities that are neither part of a consolidated group for financial accounting purposes nor standalone entities for the purposes of the interest limitation rules) may, upon request, benefit from a special equity ratio escape clause.

This special equity ratio escape clause is fulfilled if the single-entity group can demonstrate that its equity ratio is equal or greater than the equivalent equity ratio of its group. In this hypothesis, the single-entity group may deduct the full amount of its exceeding borrowing cost. For instance, such new group exemption should have a positive impact on an orphan securitization vehicle not included in a financial consolidation and having issued notes almost exclusively to third parties. This is a welcome measure to reinforce Luxembourg’s attractiveness of certain securitization transactions. This provision applies to financial year starting as from 1st January 2024.

Controlled foreign companies: Since January 1st, 2019, Luxembourg tax law provides for CFC rules. The rules aim to attribute and tax undistributed profits from a low-taxed foreign subsidiary (i.e., the CFC) at the level of its Luxembourg parent company. The rules target EU and non-EU CFC if there is a direct or indirect participation of more than 50% in voting rights, capital or profit entitlement and if the actual corporate tax due by the CFC is lower than 50% of the corporate income tax (’CIT’) which would be due in Luxembourg.

Hybrid mismatches:  Anti-Tax avoidance Directive 2 “ATAD2” ATAD 2 European union dispositions covering hybrid mismatches with third countries were transposed into domestic law through the article 168ter of the Luxembourg Income Tax Law (’LITL’). The article 168 ter. LITL was applicable in Luxembourg as from tax year 2020. The provisions of the article 168 ter. LITL are applicable whenever there is:

1. A transaction between associated enterprises or under a structured arrangement

2. leads to a deduction without any inclusion or a double deduction (‘hybrid mismatch’) and

3. such mismatch results/is attributable to – for payment under hybrid instruments: the mismatch is attributable to differences in the characterization of the instrument or the payment made under it.

– for payment to hybrid entities: the mismatch is the result of differences in the allocation of payments made to hybrid entity under the laws of the jurisdiction where the hybrid entity is established or registered and the jurisdiction of any person with a participation in that hybrid entity

 Associated enterprises concept In the context of hybrid instruments, the provisions of the article 168ter LITL define associated enterprises as follow: “an individual or entity which holds directly or indirectly a participation in terms of voting rights or capital ownership in a taxpayer of 25% or more or is entitled to receive 25% of more of the profits of the taxpayers”. In the context of hybrid entities, the above-mentioned threshold is replaced by 50%. An enterprise that has a “significant influence” in the management of the taxpayer should also be considered as an associated enterprise. In the domestic law, there is no guideline for establishing the existence of significant influence and further guidance from the Luxembourg tax authorities is expected on this point.

 Acting together concept Always by reference to the article 168 LITL, a person who acts together with another person in respect of voting rights or capital ownership of an entity is deemed to hold the rights or capital ownership held by the other person in such entity and the respective holding percentage of the investors should be aggregated. Nonetheless, an individual or entity holding, directly or indirectly, less than 10% in the shares/units of an investment fund and who is entitled to receive less than 10% of the profit of the latter investment fund, is presumed not to be considered as “acting together” since they are deemed not to control investments made by the investment fund. In such situation, the burden to establish that the investor is to be “acting together” with other investors rely on the Luxembourg tax authorities.

 Reverse hybrid rules Always in the context of ATAD II, the article 168 quarter. LITL covering Luxembourg reverse hybrid mismatch rules, was introduced in the domestic legislation and was applicable as from tax year 2022. The article 168 quarter. LITL applies to entities established in Luxembourg, particularly partnerships, whose income is allocated to their owners for Luxembourg income tax purposes. The rule is designed to address situations where a Luxembourg entity is treated as transparent for tax purposes in Luxembourg but opaque in the jurisdiction of its investors. This rule aims to eliminate double non-taxation by treating these entities as resident taxpayers and subjecting them to Luxembourg corporate income tax.

Disclosure requirements: With effect as of July 1, 2020, the EU Directive on administrative cooperation (“DAC 6”), which introduces a mandatory and automatic exchange of information on reportable cross-border arrangements (aggressive transactions defined in different Hallmarks), has been implemented into the Luxembourg law.

The Luxembourg DAC 6 law requires intermediaries and, in certain cases, taxpayers to report information on reportable cross-border arrangements to the Luxembourg tax authorities. This information is then automatically exchanged with other EU Member States.

• The Country-By-Country (‘CBC’) reporting rules were developed by the OECD in its final report on Action 13 of the Base Erosion and Profit Shifting (BEPS) project. In Luxembourg, the CBC reporting rules are implemented by the law of 13 December 2016, which transposes the Directive 2016/881/EU of 25 May 2016. The rules require multinational enterprises (MNE) groups with a consolidated revenue exceeding EUR 750 million to prepare a CBC report. The report must be filed within 12 months following the last day of the reporting fiscal year of the MNE group. The CBC report must include information on revenue, profit/loss before income tax, income tax paid or accrued, stated capital, undistributed profits, number of employees, and tangible assets other than cash or cash equivalents. The CBC report follows the OECD recommendations provided in Chapter V of the OECD Transfer Pricing Guidelines.

Exit taxes: The exit tax rules specifically cover the transfer of assets, the transfer of a taxpayer’s tax residency and the transfer of the activities of a permanent establishment. They provide for the taxation of the difference between the fair market value of the assets at the time of transfer less their value for tax purposes. This exit taxation occurs insofar as Luxembourg looses its taxation right. In case of transfers to another EU country or within the EEA, the Luxembourg taxpayer may request to defer the payment of the exit tax by paying in equal instalments over 5 years. This option is available only for migrations to an EU Member State or an EEA State with which Luxembourg has concluded an agreement on mutual assistance for the recovery of tax claims. The deferral is not available for transfers to third-country jurisdictions, where the exit tax must be paid immediately. The five-year period is the maximum allowed under both the ATAD Directive and Luxembourg law.

General anti-avoidance rule: Based on the general anti-abuse rule (“GAAR”), an abuse exists in the presence of a transaction which one of the main purposes is to obtain a tax advantage that defeats the object or purpose of the applicable tax law and which is not genuine (not chosen for commercial reasons that reflect economic reality). In case of abuse, the Luxembourg Tax Authorities will tax the transaction accordingly.

Digital services tax and Other significant anti-avoidance legislation: Pillar II of the OECD’s Base Erosion and Profit Shifting (BEPS) project aims to establish a global minimum effective tax rate for multinational corporations. This initiative, known as the Global Minimum Tax Directive, seeks to prevent multinational companies from shifting profits to low-tax jurisdictions. Pillar II was implemented in domestic law on December 22, 2023. The income inclusion rule (IIR), which serves as the primary taxing rule, is applicable as from January 1st, 2024 in Luxembourg. In brief, Pillar Two in Luxembourg applies to both multinational enterprises (MNEs) and large-scale domestic groups (DGs). The law applies to companies located in Luxembourg that are part of an MNE group, which is defined as any group with consolidated annual revenue exceeding EUR 750 million. The law introduces three new taxes: the income inclusion rule (IIR) top-up tax, the undertaxed profits rule (UTPR) top-up tax, and the qualified domestic minimum top-up tax (QDMTT). The IIR, the primary taxing rule, requiring the ultimate parent entity (UPE) of a group to evaluate if its entities reach a 15% effective tax rate (ETR) in each jurisdiction, is applicable in Luxembourg since January 1st, 2024. If the ETR falls below this threshold, the parent entity must remit an additional amount of tax. In the initial phase of Pillar II, exclusion relief exempts for MNE groups or DGs from calculating the IIR may apply provided certain very specific conditions are met. Certain entities are excluded from Pillar II domestic law (namely government entities, pension funds and some specific funds).

Value-added tax/Goods and services tax

Type of tax: Value-added tax (VAT). VAT applies to supplies of most goods and services and to imports. There is a broad range of exempt supplies.

Standard rate: 17%

Reduced rates: 3% , 8% , 14%

Registration: Must register for VAT anyone established in Luxembourg, who undertakes a taxable activity and assumes that its annual turnover will exceed EUR 50 000. Voluntary registration is possible.

Filing and payment: If the annual turnover is less than EUR 112 000, only an annual return has to be filed by 1 March of the following year and the VAT has to be paid by the same deadline. However, if the annual turnover is over EUR 620 000, monthly VAT returns, in addition to the annual one, are to be filed by the 15th day of the following month and, if the turnover is less than EUR 620 000 but more than EUR 112 000, the returns are to be filed quarterly by the 15th day of the following quarter. The VAT has to be paid by the same deadline.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Pension        (1)	8,00%	8,00%
Sickness       (1)	3,05%	3,05%
Accident       (1)	0,70%	0%

Mutual insurance    (1)                                                 0,07% to 2,64%                              0%

Health at work         (1)                                                 0,14%                                             0%

Dependence            (2)                                                 0%                                             1,40%

TOTAL                                                                     11,96% /14,53%                              12,45%   

(1) Contribution computed on a yearly gross remuneration capped to an annual ceiling of EUR 158 267,52 ( as of 01.01.2025); tax deductible

(2) Not capped; not tax deductible

Self-employed

Both employee’s and employer’s portions are due by the self-employed.

Other taxes

Capital duty: No capital duty is levied in Luxembourg (except in particular cases). A registration fee of EUR 75 is imposed on the incorporation of a Luxembourg company or on amendments to bylaws (transfer to Luxembourg of a company’s registered office).

Immovable property taxes: The transfer of immovable property is subject to a transfer tax of 7% ( 10% for real estate located in Luxembourg City).

Transfer tax: There is no need to register the sale of a movable asset. However, if voluntary registered, the transfer is subject to a tax at a rate of 6%.

Stamp duty: None

Net wealth/worth tax: Companies are subject to an annual net wealth tax (NWT) at a rate of 0,5% calculated on the net asset value of the company. Shareholdings qualifying for the participation exemption regime are exempted from the taxable basis. The minimum NWT goes from EUR 535 to EUR 32 100.

However, the minimum will vary, depending on their total balance sheet, between EUR 535 and a maximum of EUR 4 815, for all corporate entities with aggregated fixed financial assets, transferable securities, inter-company receivables and cash deposits exceeding 90% (EUR 535 if the total balance sheet does not exceed EUR 350 000, EUR 1 605 if the total balance sheet is over EUR 350 000 but less than EUR 2 000 000 and EUR 4 815 if the total balance sheet exceeds the amount of EUR 2 000 000. For other companies, the minimum NWT is calculated according to the amount of their total balance sheet at year end. Under certain conditions, the NWT charge for a given year can be avoided or reduced to the minimum.

Among these conditions, an amount of 5 times the NWT reduction has to be allocated to a specific reserve in the balance sheet and kept there during the five tax years following its allotment. Individuals are not subject to NWT.

Inheritance/gift taxes: Inheritance taxes are levied on the market value of the whole estate left by a Luxembourg resident at the time of his death, except for real estate located abroad. The tax rates differ depending on the degree of relationship between the heir and the deceased. There is no inheritance tax in direct line and between spouses (rates for other degrees: 0% to 48%). Gift taxes are payable by the donee at a rate varying from 1,8% to 14,4%, depending on the degree of relationship between the donor and the donee. Gifts of immovable property may be subject to an additional transfer duty of 1%.

Other: Goods imported from outside the EU may be subject to customs duties . Excise duties are levied on certain products (spirits, petrol, tobacco ).

Tax treaties

Luxembourg has concluded about 92 double tax treaties , most of which include provisions on exchange of information between Tax Authorities. It is also a signatory to the OECD Multilateral Instrument (“MLI”).