Taxes in Europe Database v2
Law of 4 December 1967 on income tax, Title II, Articles 158-174 (Mémorial A, 1967, pp. 1276-1281), as amended by successive laws and implementing regulations, the most recent of which are:
Law of 23 December 1997 amending income tax and other provisions (Mémorial A, 1997, p. 3332);
Law of 8 June 1999 introducing pension funds (Mémorial A, 1999, p. 1476);
Law of 8 August 2000 (Mémorial A, 2000, p. 2217);
Law of 15 December 2000 (Mémorial A, 2000, p. 2969);
Law of 21 December 2001 (Mémorial A, 2001, p. 3324);
Law of 22 March 2004 (Mémorial A, 2004, p. 720);
Law of 15 June 2004 (Mémorial A, 2004, p. 1568);
Law of 9 July 2004 (Mémorial A, 2004, p. 1878);
Law of 13 July 2005(Mémorial A, 2005, p. 1860);
Law of 17 November 2006 (Mémorial A, 2006, p. 3476).
Law of 19 December 2008 (Mémorial A, 2008, p.2627)
Law of 21 December 2012 (Mémorial A, 2012, p. 2830)
Trading profit. The profit is defined as the difference between the net invested assets at the end and the net invested assets at the beginning of the year, plus any withdrawals but minus any additions and contributions made during the year.
(The profit is determined according to the rules governing personal income tax).
1.50 – 4.00%
The declining-balance depreciation rates may be as high as 3 times the straight-line depreciation rate without exceeding 30% (4 times and 40% for equipment exclusively used for research and development
The declining-balance depreciation rates may be as high as 3 times the straight-line depreciation rate without exceeding 30% (4 times and 40% for equipment exclusively used for research and development).
In addition to the deductions as for personal income tax, the other expenses which may be deducted are:
1. funds earmarked for the technical reserves of insurance companies;
2. refunds made to members by cooperative and certain agricultural associations in so far as the distributions of profits, other than the refunds, represent less than 5 % of the net assets invested at the end of the financial year concerned;
3. amounts due to partners in partnerships limited by shares for rent, interest on assets, or fees for an activity in the service of the company.
1. Certain corporate bodies whose direct or exclusive objectives are religious, charitable or of general interest.
2. Establishments supplying water, gas and electricity and belonging to the State, municipalities or groups of municipalities.
3. National lottery, national low-cost housing corporation, independent employers' pension and provident funds.
4. Holding companies.
5. Exclusively occupational associations and agricultural cooperatives in which machines are used in common and by which the agricultural produce of the members is processed or sold.
Real exemptions (privilege of parent companies and subsidiaries - Schachtelprivileg):
- Where resident joint stock companies sell shares in a collective entity, the capital gains realised are tax exempt provided a holding period of at least 12 months and a share holding of at least 10 % or that was purchased for at least EUR 6 millions;
- The income of a resident joint-stock company which is fully liable to tax and which has a direct continuous holding of at least 10 % or at least EUR 1,200,000 in the capital of another joint-stock company is exempted wholly if the other company is fully liable to tax.
The Luxembourg tax law does not contain any specific thin-capitalization rules. In principle, borrowed money that is necessary for financing an operation is not limited to a percentage of paid-in capital. However, based on the abuse-of-law doctrine, the authorities tend to challenge debt-to-equity ratios of companies engaged in holding activities that are greater than 85:15. Under the abuse-of-law doctrine, the tax authorities may challenge fictitious or abnormal transactions and schemes that are entered into for the sole purpose of avoiding taxes.
The combined rate is calculated as follows:
Surcharges:To provide resources for the unemployment fund, the liability for corporate income tax is increased by a “solidarity” surcharge of 7 % of the amount payable under the above rules.
Tax is payable annually on the basis of tax returns within one month after receipt of the tax assessment notice.
Tax is paid in quarterly instalments in advance and withheld at source on certain forms of income (income from capital).
The advance payments and the tax withheld at source are deductible against final income tax liability.
Administration of direct taxes (Administration des contributions directes).
Only income accruing in Luxembourg is taxable; there are no personal exemptions; tax may be withheld at source, and this extinguishes the tax debt.
Unlimited, subject to the same conditions as for natural persons.