Corporate
Income Tax
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:
- corporate income tax (l’impôt sur le revenue
des collectivités)
- and municipal business tax (l’impôt commercial communal).
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%.
Withholding Tax
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
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%.
Capital duty
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 :
- debt or advance by third party (debenture loan issued by the Luxembourg company, other debts, ...);
- contribution of the majority of shares of a company having its head office in the EU (>65%) in a Luxembourg holding company;
- head office transfer (redomiciliation) from an EU member state to Luxembourg, if a similar duty has been past during its incorporation;
- transformation of a capital company in Luxembourg in Private Assets Management company, Holding 1929, Soparfi established in Luxembourg;
- incorporation of reserves or profits carried forward to the capital of a Luxembourg company; and
- other transactions listed in the frame of the merger/split or exchange involving a Luxembourg holding company (Directive 69/335).
Double tax treaties
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.
Holding Companies
There are two types of Luxembourg Holding Companies:
- Luxembourg companies qualifying for the participation exemption
regime that are usually referred to as SOPARFI (Société
de Participation Financière);
- Tax-exempt holding companies – 1929 Holding;
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.
SPF - Private Asset Management Company
The regime "SPF" can be chosen by a company whose form must be:
- Sárl: capital 12,500 Euro, one associate, one director
- SA: capital 3,000 Euro (including at least 1/4 paid in), at least one shareholder and one director, one auditor
- SCA: capital 31,000 Euro (including at least 1/4 paid in), at least two shareholders and three directors, one auditor
- COOPSA: Co-operative Company having adopted the Form of a Limited company, at least three associates, 3 directors.
Advantage: Variable Capital
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.
Debt
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
-
a Family group;
- a Family office;
- a Investment Club;
- a group of investors managing their private savings.
2) Entities known as managing patrimonial assets, resident or non-resident:
- trusts;
- private foundations;
- stitching;
- administratie kantoor;
- similar entities with or without the legal personality acting within the management individuals' assets and;
- any type of nominee agreement by intermediaries holding the shares of the SPF as fiduciary (banks acting within a fiduciary contract, mandate).
Fiscal Regime of the "SPF"
Taxation at the Constitution
Contribution Duty of 1% at the constitution with possibilities of exemption:
-
on the part of the debt or the advance towards the shareholders or the third parties - max 8 x the subscribed capital (for subscription tax);
- when the contribution is the majority of the shares of a company having its registered office in the European Union (>65%);
- when there is a transfer of registered office from a Member State of the EU towards Luxembourg in so far as a similar duty was charged at the constitution;
- when there is a change in the form of a Luxembourg Company into a SPF form (Holding 1929, Soparfi...);
- when there is the incorporation of reserves or deferred results to the capital.
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:
- If Luxembourg resident: either final withholding at the source = 10% (see article on law RELIBI) - or global taxation
- If not a Luxembourg resident: final withholding tax at the source = 15% (saving directive)
Withholding tax at source
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.
Wealth tax
Exemption.
Mother Subsidiary Treaty or Interests Royalties Directive
Exclusion.
Anti-abuse measure
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.).
Withholding at the source on wages paid to employees or directors
According to scales with reduction and exemption following the situation of the Beneficiary.
Withholding at the source on directors' fees
20%.
VAT
No registration possible.
Subscription tax
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.
Control ad supervision of the SPF
- 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.
- Each year, the domiciliation agent (a chartered accountant, an Auditor) must Certify that:
- the SPF is held only by qualified investors (the name of these people is covered by its professional secrecy and he cannot reveal it);
- the SPF does not perceive more than 5% of its dividends coming from companies ex EU taxable at less than 11%;
- the SPF respected its obligations as a paying agent following the law "relibi" and the directive on the savings taxation.
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).
- 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.
SOPARFI
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:
- Tax exemption on dividends, capital gains and liquidation
proceeds;
- Net wealth tax exemption on investments;
- No withholding tax or reduced rates under double tax treaties
on distribution of dividends;
The conditions, which must be met in order to qualify
for the exemption, are summarized below.
»
Dividends, capital gains and liquidation proceeds
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 SOPARFI owns at least 10% of the share capital of the
distributing company or the acquisition cost of the shareholding
is at least € 1,2 millions (€ 6 millions for capital
gains exemption);
- The shareholding is held for a straight 12 month period.
This period does not need to be completed at the time of the
distribution of the dividends if the SOPARFI commits itself
to eventually hold the participation for the required period;
- The distributing company must be subject to a tax similar
to Luxembourg corporate income tax (at least 11%); OR
- The distributing company must be resident in one of the
EU member states and covered by the article 2 of the EU Parent-Subsidiary
Directive;
- The distributing company is a permanent establishment of a capital company resident in a state with which Luxembourg concluded a tax treaty.
»
Net Wealth Tax
If the participation meets the conditions mentioned above it is
also exempt from net wealth tax in Luxembourg.
»
Withholding tax
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).
SICAR
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:
- institutional investors, which under certain guidance would include banks,
insurance companies, pension funds, commercial companies, investment funds and
certain holding companies;
- professional investors defined as “a client who possesses the experience,
knowledge and expertise to make its own investment decisions and properly assess
the risks that it incurs”;
- any other investor who cumulatively a) has confirmed in writing that he adheres to
the status of well-informed investor AND b) invests a minimum of Euro 125,000 in
the company.
The registered office and administration of the SICAR must be located in Luxembourg. Nevertheless, there are no residency restrictions regarding the management function.
Personal Income
Tax
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.
Regular Social
Security Contributions
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.
Inheritance and
Gift Taxes
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.
DOUBLE TAX TREATIES
Luxembourg
As at 1st June 2005
 |
|
|
|
|
|
|
|
| Austria |
0/5/15 |
0 |
0 |
5 |
0 |
0/10 |
|
| Belgium |
01/10/15 |
0 |
0 |
15 |
15 |
0 |
|
| Brazil |
15 |
0 |
0 |
0 |
15 |
15 |
|
| Bulgaria |
5/15 |
0 |
0 |
5/15 |
10 |
5 |
|
| Canada |
0/5/15 |
0 |
0 |
15/10/5 |
10/0 |
10/0 |
|
| China |
5/10 |
0 |
0 |
5/10 |
10 |
10 |
|
| Czech
Republic |
5/15 |
0 |
0 |
5/15 |
0 |
0/10 |
|
| Denmark |
0/5/15 |
0 |
0 |
5 |
0 |
0 |
|
| Estonia |
5/15 |
0 |
0 |
|
|
|
|
| Finland |
0/5/15 |
0 |
0 |
5/15 |
0 |
0/5 |
|
| France |
0/10/15 |
0 |
0 |
0/5/15/25 |
0/10 |
0 |
|
| Germany |
0/10/15 |
0 |
0 |
0 |
0 |
5 |
|
| Greece |
0/7.5 |
0 |
0 |
0 |
8 |
7 |
|
| Hungary |
5/15 |
0 |
0 |
5/15 |
0 |
0 |
|
| Iceland(r) |
5/15 |
0 |
0 |
5/15 |
0 |
0 |
|
| Indonesia |
10/15 |
0 |
0 |
15/10 |
0/10 |
12.5 |
|
| Ireland |
0/10/15 |
0 |
0 |
0 |
0 |
0 |
|
| Israel |
10/15 |
0 |
0 |
|
|
|
|
| Italy |
0/15 |
0 |
0 |
15 |
0/10 |
10 |
|
| Japan |
5/15 |
0 |
0 |
5/15 |
10 |
10 |
|
| Korea |
10/15 |
0 |
0 |
10/15 |
10 |
10/15 |
|
| Malaysia |
5/10 |
0 |
0 |
5/10 |
10 |
8 |
|
| Malta |
5/15 |
0 |
0 |
0 |
0 |
0 |
|
| Mauritius |
5/10 |
0 |
0 |
5 |
0 |
0 |
|
| Mexico
(p) |
5/15 |
0 |
0 |
5/15 |
10 |
10 |
|
| Mongolia |
5/15 |
0 |
0 |
5/15 |
0/10 |
5 |
|
| Morocco |
10/15 |
0 |
0 |
10/15 |
10 |
10 |
|
| Netherlands |
0/2.5/15 |
0 |
0 |
0/2.5 |
0 |
0 |
|
| Norway |
5/15 |
0 |
0 |
5 |
0 |
0 |
|
| Poland |
5/15 |
0 |
0 |
5/15 |
10 |
10 |
|
| Portugal |
0/15 |
0 |
0 |
15 |
10/15 |
10 |
|
| Romania |
5/15 |
0 |
0 |
5/15 |
10 |
10 |
|
| Russia |
10/15 |
0 |
0 |
10/15 |
0 |
0 |
|
| San Marino |
0/15 |
0 |
0 |
|
|
|
|
| Singapore |
5/10 |
0 |
0 |
0 |
10 |
10 |
|
| Slovak
Rep |
5/15 |
0 |
0 |
5/15 |
0 |
0/10 |
|
| Slovenia |
5/15 |
0 |
0 |
5/15 |
5 |
5 |
|
| South
Africa |
5/15 |
0 |
0 |
0 |
0 |
0 |
|
| Spain |
0/5/15 |
0 |
0 |
10 |
10 |
10 |
|
| Sweden |
0/5/15 |
0 |
0 |
15/0 |
0 |
0 |
|
| Switzerland |
0/5/15 |
0 |
0 |
0 |
10 |
0 |
|
| Thailand |
5/15 |
0 |
0 |
10 |
15 |
15 |
|
| Trinidad
& Tobago |
5/10 |
0 |
0 |
5/10 |
7.5/10 |
10 |
|
| Tunisia |
10 |
0 |
0 |
0 |
20 |
15 |
|
| Turkey
(x) |
5/20 |
0 |
0 |
10/20 |
10/15 |
10 |
|
| UK |
0/5/15 |
0 |
0 |
0 |
0 |
5 |
|
| Ukraine |
5/15 |
0 |
0 |
|
|
|
|
| United
States |
0/5/15 |
0 |
0 |
15/5 |
0 |
0 |
|
| Uzbekistan |
5/15 |
0 |
0 |
5/15 |
10 |
5 |
|
| Vietnam |
5/10/15 |
0 |
0 |
5/10/15 |
10 |
10 |
|
| Non-treaty
Countries |
20 |
0 |
0 |
|
|
|
|
Treaties in negotiation
|
