Luxembourg: Business Environment

Company Tax

Tax Rate For Foreign Companies

Resident entities are taxed on their worldwide income, whereas non-residents are only subject to tax on Luxembourg-source income.
Luxembourg branches are taxed in the same way as companies.

Capital Gains Taxation

Capital gains and losses are treated as ordinary income and are subject to corporate tax. The taxation of gains on certain fixed assets could be deferred where the proceeds are used to acquire replacement items.
Capital gains from the sale of shares may be exempt from tax if the payee maintains or undertakes to maintain their participation, directly or indirectly, for an uninterrupted period of at least 12 months and that the participation does not fall below 10% or a purchase price of EUR 6 million during this period.

Main Allowable Deductions and Tax Credits

Depreciation of tangible and intangible assets is tax-deductible. Goodwill can be amortised over its useful life, or if it cannot be measured otherwise, the amortisation period is limited to ten years.
Start-up expenses can be charged directly to the profit and loss account of the year in which they are incurred, or amortised over a period of five years.
Interest charges are deductible as long as they are consistent with the arm's-length principle. Bad debts are generally deductible.
Donations to charitable organisations are deductible up to 20% of net income or EUR 1 million (the minimum amount being EUR 120). The excess amount of donation can be deducted over two years.
Compensation payments and severance pay are deductible up to EUR 300,000.
Fines and penalties are not deductible. Taxes, with the exception of corporation tax, municipal tax and wealth tax are generally deductible.
Tax losses incurred through the years ending on 31 December 2016 may be carried forward indefinitely. Losses incurred after this date may be carried forward up to 17 years. The carryback of losses is not permitted.
Payments to foreign subsidiaries (royalties, management fees, interest paid by a Luxembourg company to foreign subsidiaries) are deductible as long as they respect the arm's-length principle. Interest or royalties due to related parties as of 1 March 2021 are not tax deductible if their recipients are corporate entities established in countries that are considered 'non-cooperative' for tax purposes (limitations apply).

Other Corporate Taxes

Luxembourg resident companies and subsidiaries of foreign companies are subject to wealth tax. The rate is 0.5% for a taxable base up to EUR 500 million. For a taxable base exceeding EUR 500 million, companies are required to pay a lump-sum fee of EUR 2.5 million and 0.05% of the tax base in excess of EUR 500 million, without any limit. Companies with their head office or central office of administration in Luxembourg are subject to the minimum wealth tax (with amounts varying between EUR 535 and EUR 32,100 according to the total gross assets).
A subscription tax is levied on transferable securities (a registration fee that would give rise to the transfer of securities). The rate is 0.05% for mutual funds based on net assets at the end of the quarter. The rate is reduced to 0.01% for specialised investment funds and reserved alternative investment funds. Graduated rate reductions apply for funds that invest in "sustainable" investments.
Certain deeds (establishment, amendment of the articles of association, transfer of seat to Luxembourg) give rise to a lump-sum registration fee of EUR 75. A proportional fee is also payable if the deed involves a contribution of immovable property or a contribution of movable assets against payment.
The sale or transfer of real estate is subject to a registration fee of 7%. A municipal surcharge of 3% applies to real estate transfers in the City of Luxembourg.
The contribution of real estate in exchange for securities is subject to a registration fee of 1.1%. A municipal surcharge of 0.3% applies to real estate transfers in the City of Luxembourg.
An annual real estate tax is levied by municipalities at rates varying between 0.7% and 1% of the unitary value of the property (and is multiplied by a coefficient based on the type of property and municipality - the coefficient is 750% for commercial property in Luxembourg City).
As of 2021, a new Real Estate Levy ("prélèvement immobilier") applies to certain investment fund vehicles, at a rate of 20%.
The municipal business tax on income is levied at rates between 6.75% and 10.5%, depending on the municipality (calculated from the multiplication of the tax base by the municipal rate).
The rates of social security contributions paid by the employer vary between 12.29% and 14.92% and are capped at an annual ceiling of EUR 135,417.24 for 2022.

Other Domestic Resources

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

Subject to limitations, deductions are permitted for insurance premiums for life, accident, sickness (up to EUR 672 per person); alimonies (up to EUR 24,000) and annuities; childcare, kindergarten and housekeeping cost; charitable contributions (up to the lower of EUR 1 million or 20% of taxable income); interest on personal and mortgage loans, etc. Commuting expenses can be deducted up to EUR 2,574 per year. If the employer subscribes to a supplementary pension scheme for employees and the employees pay an additional personal contribution, the latter is deductible from taxable income up to a maximum of EUR 1,200. Childcare or domestic service costs are deductible up to a maximum of EUR 5,400.
Each employee receives an annual flat-rate allowance of EUR 480 for expenses related directly to their job. If the business expenses exceed the annual flat-rate allowance of EUR 480, the employee may deduct the actual amount of his/her expenses.

Special Expatriate Tax Regime

Non-residents are only taxed on their Luxembourg-source income. Non-residents can deduct only expenses related to income subject to Luxembourg taxation, and they may also deduct their social security contributions paid in Luxembourg and the lump-sum standard deduction of EUR 480 (there is an option to be treated as tax-resident when 90% of the individual's worldwide income is taxable in Luxembourg or when the total income earned outside the country is below EUR 13,000).
Qualifying international employees, recruited or assigned to work in Luxembourg, can benefit from a special tax regime that provides tax exemptions for certain benefits. Conditions apply (minimum 5 years of seniority in the international group/sector concerned, minimum yearly salary of EUR 100,000, etc.).