Before perusing the text below please have in mind that, although we strive to keep all of our information up to date, Luxembourg Laws and the Fiscal Regulations in particular are subject to continuous change. Therefore, the figures below are only for your reference. Before establishing a corporate strategy you can consult our tax lawyers in Luxembourg.
Luxembourg resident companies are subject to the following types of taxes:
If the legal entities have a registered place of business in Luxembourg must pay a tax on capital income. The corporate tax rate is 29.22% (for a company having its registered office in Luxembourg city or 31.47% for a company located in Capellen), consists of: the income tax (IRC) which is 21% in the case of a profit higher than 15 000 EUR or 20% in the case of a profit below 15.000 EUR, a contribution to the employment fund of 7% rate and a Municipal Business Tax of 6.75% (9% Capellen). In case of tax consolidation, the minimum tax as described above applies only to the parent company or the native establishment.
A minimum of 3.210 EUR for financial companies (Soparfis, SICARS, securitization companies, SEPCAVS, ASSEPS) with a total financial accounts, securities and bank accounts exceeding 90% of their total assets must be delivered to the tax authorities. There is no minimum income tax for corporations like SPF, SICAV, SIF-SICAV.
Dividends are added to the tax base and undergo a deduction at source maximum of 15% but are fully exempt from such withholding when paid to taxable companies established in the 60 countries with which Luxembourg has signed a tax treaty (if the participation of at least 10% is held for a period of 12 months.). Unlike other jurisdictions, the interests and royalties are not subject to any withholding taxes.
The municipal business tax is included in the corporate tax rate and it is levied by the municipality in which the company has its headquarters. The rate varies depending on the municipality and it is ranging 6% and 12%. Companies domiciled in Capellen are taxed with a rate of 9%.
The wealth tax is calculated on the value of net assets as shown in the balance sheet at the end of the taxable period. Buildings account for only a fraction of their value. Major holdings are fully exempt from the calculation base of the tax. The wealth tax is 0.5%.
An annual VAT return based on the annual turnover must be filled by the taxpayers. The VAT return may also be requested to be filled monthly or quarterly VAT returns.
The minimum registration threshold for VAT in Luxembourg is 25000 EUR and the tax is usually 15%, but certain exemptions are granted on exports, health, financial and medical services and leasing of immovable property.
Minimized taxes of 12% apply to printed marketing materials, wines, advertising while the bikes, gas and electricity providing to individuals are charged with 6%. The foodstuffs products, books, pharmaceuticals, medical, passenger transport, newspapers, admission to cultural, sporting and entertainment events, hotels, restaurants, printed materials, e-books, water are taxed with 3%.
At the end of December 2016, the government has proposed a few changes to the taxation system of companies in Luxembourg. According to the document, starting 2017 the corporate tax would be lowered to 19% and from 2018 this tax would further be decreased to 18%. The computed tax for Luxembourg city would come to a total of 27,08% in 2017 and 26,01% in 2018.
The tax losses from the income and municipal business taxes will also be limited starting with 2017. The limit will be 17 years. Under the new Tax Law, the deduction of tax losses with the older ones. Also, there will be no limit to the amount to be deducted anymore.
All the tax changes established by the government aim at supporting the development of startup companies in Luxembourg. In order to accomplish that, the new Luxembourg Tax Law will be amended as to welcome several new low rates for the taxes paid by startups and small businesses, such as family offices. Companies with a yearly taxable income of less than 25,000 euros, will be levied a 15% corporate tax. A new tax rate will also be introduced for companies earning between 25,000 and 30,000 euros. These companies will pay 3,750 euros plus 33% of the revenue exceeding 25,000 euros.
Companies hiring employees will also benefit from tax credits until the end of 2019.
A measure which has already been implemented is the filing of the annual income tax returns which must be submitted in an electronic form with the tax authorities. The net wealth tax returns will also be filed electronically starting with the tax year of 2017.
Our law firm offers legal services related to the Luxembourg Tax Law. Please contact us with any question in the matter.
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