Corporate income tax applies to all resident companies and to Luxembourg permanent establishments of foreign companies. Resident taxpayers are liable to tax on their world-wide income, unless income is exempted under the provisions of applicable double tax treaties. Non resident taxpayers are liable to tax only on their Luxembourg sourced income. A company is considered to be a resident tax payer if its place of management is located in Luxembourg.
Corporate income tax includes two taxes applicable to the profits of a company:
Since 1 January 2006, companies incorporated in Luxembourg are subject to progressive corporation income tax (including municipal tax) with rates rising from 0% to a maximum 29.63%.
A withholding tax of 15% is levied on dividend payments, unless the double tax treaties provide for lower rates or the Luxembourg participation exemption is applicable (see below). Interest, royalties and liquidation proceeds are not subject to withholding tax.
Net wealth tax is levied annually on total gross assets reduced by the debts of the companies. The actual net worth tax rate is 0.5%.
When a company is formed, the subscription of its capital is subject to a duty tax equal to 1% of the capital. The same is true for capital increase, whether in cash, in kind or for share premium.
However, if a company is formed in another European Country and can show that a similar tax has been paid in that country, the Luxembourg duty tax does not apply. This structure is used when a company requires large amounts of capital subscription.
Some transactions are exempt of capital duty in Luxembourg in cases of:
Up until now, Luxembourg has signed bilateral taxation treaties with more than 50 countries. This tax treaties’ network is constantly expanded. The complete list of the double tax treaties signed by Luxembourg is attached to this brochure.
There are two types of Luxembourg Holding Companies:
Both holding companies are not special legal entities. They can be formed as SA, SARL, SCA and even as cooperatives SC (SOPARFI, however, may not take the last form). In practice, the large majority of Luxembourg holding companies are constituted as a SA or a SARL.
The regime "SPF" can be chosen by a company whose form must be:
The shares of a SPF can be nominative or at the bearer but cannot be quoted.
The activity is strictly limited to acquisition, detention, management and realisation of financial assets such as:
Shares, obligations, shares of quoted companies or private companies, securitisation funds, Soparfi shares, variable capital companies, Holding 1929 (within the limits of the Law - 19/07/06), deposit accounts, SICAV, Luxembourg or foreign investment funds, structured products, hedge funds, precious metals, options, warrants, indices, currencies... to guarantee or make non bearing interest loan to its subsidiaries.
The SPF cannot carry out commercial deals, hold building, intellectual rights or carry on an activity of management, trade or financial services.
It can obviously hold a subsidiary company which carries out such operations.
According to the type of company chosen, the "SPF" can issue securities, contract debts with its shareholders, with third parties like banks, natural persons, legal entities or other entities – resident or non resident. There is no maximum debt equity ratio; the subscription tax is only due on the debts part which exceeds 8 times the increased paid-up capital of the capital premiums.
The shareholders of this SPF must be:
1) Individuals (other than company) resident or non resident
2) Entities known as managing patrimonial assets, resident or non-resident:
Contribution Duty of 1% at the constitution with possibilities of exemption:
Taxation of products, benefits, dividends or other profits perceived or carried out by the SPF because of its social object.
Total Exemption of income tax, communal tax but exclusion of all tax treaties.
Withholding at source on the interests paid on the advances and debts of the SPF towards the individuals:
No withholding at source on the interests is to be paid on the advances and debts of the SPF towards the legal entities or other entities.
Exemption.
Exclusion.
Interdiction of perception of more than 5% of its dividends coming from non-resident and non-quoted companies (ex EU) whose rate of taxation is lower than 11% (this measure only applies to dividends coming from these companies – so does not apply to capital gains, repurchases of capital stock, profit of liquidation, security lending, etc.).
According to scales with reduction and exemption following the situation of the Beneficiary.
20%
No registration possible.
Taxable basis = paid-up capital (CL) + capital premium (CP) + debts exceeding 8 times (CL+CP) (existing at January first).
Rate = 0.25% per annum with a minimum of 100 Euro and a maximum of 125,000 Euro.
The tax is payable per quarter (and pro-rata by day for the first and last exercise).The Profit/Loss or the reserves are not taken into account in this calculation.Tax on the capital gain realized on SPF's shares.Taxation for Luxembourg resident.Exemption for non-resident person.Tax on the profit of liquidation.Taxation for Luxembourg resident.Exemption for non-resident person.
1.
Only the Administration de l'Enregistrement is qualified. This administration is different from the Tax authorities. Control is strictly limited to the respect of the conditions of the SPF Regime. No spontaneous or no information communication can be carried out by this administration except in the event of non-respect of the obligations of the SPF itself.
2.
Each year, the domiciliation agent (a chartered accountant, an Auditor) must Certify that:
It is indeed a certificate of non-objection from the paying agent to the attention of the Registry Administration. If this administration does not receive the certificate of non-objection, it informs the Tax Authorities of it and the withdrawal of the benefit of the SPF Regime can be declared (applicable starting from the reception of the registered letter).
3.
The SPF must keep a proper account and publish its annual statements once a year, respect the provisions of the company law and the law on Domiciliation of companies if applicable.
The SOPARFI is on the contrary a normal and fully taxable commercial company and it can perform activities other than holding shares, including commercial, industrial or financial activities. However, the Luxembourg tax code provides SOPARFI for some special tax regime, referred to as the participation exemption. Under this regime, the following tax advantages are available for SOPARFI:
The conditions, which must be met in order to qualify for the exemption, are summarised below.
Dividends, capital gains and liquidation proceeds received by the SOPARFI from any non-resident company are fully exempt from income tax if the following conditions are fulfilled:
If the participation meets the conditions mentioned above it is also exempt from net wealth tax in Luxembourg.
Dividends distributed by the SOPARFI to its shareholder are exempt from withholding tax in Luxembourg if the shareholders himself meets the conditions provided for SOPARFI (see above).
The SICAR (Société d’Investissement en Capital à Risque) is a regulated entity whose sole objective is to invest in private equity or risk capital. It can achieve the same results as the Channel Islands and Delaware structures being more effective in jurisdictions such as France or Italy.
A SICAR is fully subject to tax and benefits from Luxembourg’s extensive treaty network. There are no restrictions on the type of investment, payment of dividends or redemption of shares as well as risk diversification.
There is a minimum share capital of €1 million that must be reached within 1 year period after the approval of the SICAR, which may be fixed or variable, but only 5% of it must be actually paid-up.
Income from securities and gains from the sale, redemption or liquidation of assets are exempt from tax. Nevertheless, all non-investment income generated by the SICAR is taxable. Instead of the generally applicable 1% capital duty, the SICAR is subject to a maximum fixed duty of €1,250. No wealth tax or annual subscription tax is levied.
Non-resident investors are not subject to tax on capital gains from disposal of shares in the SICAR. Also, no withholding tax is applied on payment of dividends or interest by the SICAR, even in case where no tax treaty applies. Distributions on liquidation procedures are made free of tax.
Due to the high degree of risk, investment is reserved by law to institutional or “well informed” investors.
In accordance with the law, the following investors may be regarded as well-informed:
The registered office and administration of the SICAR must be located in Luxembourg. Nevertheless, there are no residency restrictions regarding the management function.
Resident taxpayers of Luxembourg are liable to personal income tax on their worldwide income while non-residents are subject to tax on their Luxembourg-source income only.
Luxembourg income tax law takes into account only 8 categories of income for the determination of total taxable income, including income from trading and business, employment, pensions and annuities, capital and investment, rentals and leases and sundry net income.
Personal income tax rates are progressive varying from 0% to 38%. Income taxation is based on the personal situation of the taxpayer (e.g. family status, number of children, etc). Married couples are taxed jointly.
Dividends and interests received by a resident taxpayer from a resident or non-resident company are also subject to progressive income rate. However, a 50% tax exemption can be obtained on dividends received from a taxable resident company, a company resident in an EU Member state or a State that has concluded a tax treaty with Luxembourg.
Capital gains on the sale of the taxpayer’s main residence are tax exempt while the capital gains received from the sale of other real state are normally taxable at the progressive tax rate. Capital gains from shares and other securities are taxed depending on the holding period (6 months or more) and shareholding percentage.
Under Savings Directive implemented into Luxembourg tax legislation, effective from 1 July 2005 Luxembourg paying agent is required to withhold tax on interest paid to individuals in other EU Member States unless these individuals opt for the exchange of information or provide the paying agent with certificate issued by the tax authorities of their home country.
Effective from 1 January 2006, Luxembourg residents are subject to a 10% withholding tax on interest. This is considered a final tax.
Mandatory social security contributions consist of an employers and an employee’s portion. These contributions cover pension and health insurance. Contributions for pension, illness, accident and health are computed based on the annual gross remuneration of the employee and result in the total of 10.8% for the employee and 11.52% - 16.91% for the employer.
The rate of the social contributions for self-employed individuals is approximately the same as for employers and employee combined.
The inheritance tax is calculated based on the market value of the entire net estate of a deceased at the time of his death. The tax rate varies from 0% to 40% depending on the degree of parentage.
Gifts and donations are subject gift tax payable at the rate raging from 1.8% to 14.4%, depending on the relation between the donor and the donee.
As at 1st June 2005