Luxembourg Summary Guide

Taxation of Business People in Luxembourg

Taxation of Individuals in Luxembourg
Personal income tax is on a progressive scale, ranging from 0% for income up to EUR32,000 to 38.5% for income in excess of EUR125,000. Additionally, a 2.5% unemployment surcharge is payable.

The calculation of personal income tax liability is based on various different factors, including the residence or otherwise or the taxpayer, their family situation, and the number of dependent children. There are, however, three classes of taxpayer:

- Class 1: Single
- Class 2: Intermediate
- Class 3: Married (joint assessment generally occurs here)

Non-tax residents will only have to pay income tax on that portion of income derived from within Luxembourg, while tax residents will pay tax in Luxembourg on their worldwide income.

Benefits in kind received by an employee are also subject to income tax. The amount due is based on the total market value of the benefits received.

With regard to withholding taxes, none are imposed on royalty payments (either domestic or cross-border), a 15% rate is imposed on dividend payments (although within the EU, subject to a minimum 10% shareholding, such payments between connected corporate recipients are exempt.

Although there is no withholding tax on interest payments for companies, a 10% rate applies for such payments with regard to individuals (and EU residents face a 20% withholding tax on savings interest, under the European Savings Tax Directive, although the authorities have been taken to task by the European Commission over their ‘incorrect’ application of the Directive, with regard to interest payments made to beneficial owners who benefit from "non-domiciled resident" status in their country of residence.). Additionally, a 20% WHT is imposed on directors fees, and a 28% rate on management fees.

Taxation of Business People in Luxembourg
Self-employed individuals must file an annual tax return by 31st March of the year following the tax year in question. Advance payments of tax must be made quarterly, on 10th of March, June, September and December, with such payments being based on the previous year’s tax liability.

Tax rates are the same as for personal income tax, although (depending on turnover) a sole proprietor may also be liable for Municipal Business Tax (MBT), which is a tax on profits. Partnerships may also be liable for this tax. The threshold for MBT is EUR17,500. Certain expenses incurred in running a business are tax deductible.

Taxation of Companies in Luxembourg
Corporate Tax is calculated using a complex formula. A national, standard rate of 21% applies. However, in addition to the standard rate, a surcharge of 4% is added in respect of the employment fund, plus a Municipal Business Tax on profits. The rates at which the MBT is imposed vary from 6% to 10.5%. On average, the universal marginal corporate tax rate is 28.6%. Companies with taxable income of less than EUR15,000 will pay at a rate of 20%.

For companies, Capital Gains Tax is not a separate tax as such but will added to business income and taxed accordingly. For individuals, CGT short term capital gains are taxed as ordinary income, but shares, property and other assets held long-term (the definition of which varies according to the asset type) benefit from more favourable rates and exemptions. Gains on the sale of a principal residence are usually exempt.

The standard rate of VAT is 15%, with reduced rates of 3%, 6% and 12% applicable to certain categories of goods and services. The lowest rate of 3% applies to the provision of pay-TV and radio broadcasting. The services of professionals such as lawyers and accountants are charged at 12%.

The VAT registration threshold for companies resident in Luxembourg is EUR10,000.

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Luxembourg Summary Guide Contents

 Luxembourg Summary

 Luxembourg Summary Chart

 Luxembourg Residence

 Taxation of Business People in Luxembourg

 Living and Doing Business in Luxembourg

 Business Forms in Luxembourg

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