Taxes in Luxembourg
Luxembourg is a small, economically developed state located in the center of Europe. The largest number of investment funds and banks operate in Luxembourg. The state has made a lot of business opportunities for business persons around the world. Besides, the taxation system is loyal to businessmen.
There are many reasons why Luxembourg is good for business. One of them is taxes. Luxembourg has a low VAT rate; the tax rate here is one of the lowest in all of Europe – only about 27%. This is already including all the necessary payments and VAT. The government can offer a profitable business income tax, and other tax incentives.
Who pays tax
Freelancers and sole proprietors rarely need to pay corporate tax as profits are classified and taxed as personal income.
Self-employed freelancers or sole proprietors must file a personal tax return once a year. They then pay the taxes due to the IRS (Contributions Administration or ACD) as an individual.
Income tax rates in Luxembourg are divided into 23 groups. They range from 0% to 42%, with the top group reserved for incomes over € 200,000.
Although individual entrepreneurs do not pay corporate tax in Luxembourg, they are required to pay for utilities, for property in any premises they own.
Businesses are subject to pay taxes in Luxembourg. Taxes apply to the type of business structures but not limited to listing below:
Public Limited Company (Société Anonyme - SA)
The most popular type of company in Luxembourg. The minimum share capital must be € 31,000. At the time of registration of the company in Luxembourg.
Private Limited Liability Company (Société à responsabilité limitée - SARL)
The minimum share capital issued by subscription must be from € 12000. Moreover, the auditor’s report is not required.
Simplified Limited Liability Company (Société à responsabilité limitée - SARL-S)
The minimum share capital issued by subscription must be from €1, therefore, the auditor’s report is not required.
Request bookkeeping solution
If you have a company in Luxembourg, it is mandatory to do accounting and complete all taxation rules according to Luxembourg laws.
What are the taxes
Taxes in Luxembourg are balanced to ensure a combination of high living standards and social responsibility. The tax policy of the state is very effective in covering the main items of expenses, as well as the ability to provide favourable conditions for the development of entrepreneurship and attracting foreign capital to the country.
With non-resident companies, they pay taxes to the treasury only on profits that have been received from economic activities in Luxembourg – excluding foreign income.
Corporate income tax
Foreigners in Luxembourg must pay corporate taxes on any business income that is not subject to personal income tax.
This includes income from SARL limited liability companies, SA public limited liability companies, and registered partnerships.
Companies based here pay corporate tax on profits anywhere in the world, while companies based outside Luxembourg pay on profits generated domestically.
Freelancers, sole proprietors, and those with a share in an unincorporated partnership often pay income tax instead of corporate tax.
Withholding tax
Concerning Withholding tax is 15% withholding tax is levied on dividends paid by resident companies to other resident companies. An exemption from withholding tax is granted under the same conditions that apply to the participation exemption for corporate income tax purposes. Liquidation payments are not subject to withholding tax. Dividends paid by exempt Luxembourg holding companies and investment funds are exempt from withholding tax.
Foreigners in Luxembourg must pay corporate taxes on any business income that is not subject to personal income tax.
This includes income from SARL limited liability companies, SA public limited liability companies, and registered partnerships.
Companies based here pay corporate tax on profits anywhere in the world, while companies based outside Luxembourg pay on profits generated domestically.
Freelancers, sole proprietors, and those with a share in an unincorporated partnership often pay income tax instead of corporate tax.
Property tax
Costs associated with the purchase process:
- 7% – real estate tax
- 15% VAT – payable when purchasing a new home
- 7-10% – notary services
- € 3000 – property registration
- € 3000 – loan processing
Mortgage
Mortgage loans in Luxembourg are very popular. However, it is very difficult for a foreign citizen to obtain a mortgage, it is available for residents of the country and persons with a residence permit.
Mortgage interest rates are quite low, with a fixed rate of about 6% and a floating rate of 4%.
Communal business tax
A municipal fee that is supposed to help municipalities finance their expenses.
It is paid by companies subject to corporate income tax in Luxembourg, as well as sole proprietors and partnerships that receive operating income.
For individual entrepreneurs and partnerships, there is an income limit of 40,000 euros, below which they are not paid. Reduced to 17,500 euros in cases where corporate income is paid.
The municipal business tax rate in Luxembourg is 8.25% in Esch / Alzette and 9% in Troisvierges.
The combined corporate and utility business tax rate for limited liability companies is 29.25% in Ash / Alzette and 30% in Troisvierges.
Net wealth tax
The fee applies to limited liability companies as well as to limited partnerships if one of the shareholders is the first type of company.
The tax is levied on net assets. The rate is 0.5% for assets up to 500 million euros and 0.05% for assets over 500 million euros.
Personal income tax
Income tax in Luxembourg is charged on a progressive scale with 23 brackets, which range from 0% to 42%. Workers must also pay between 7% and 9% as an additional contribution to the employment fund. The first €11,265 is offered tax-free, with the lowest rate of 8% kicking in thereafter.
Tax system
A feature of the Luxembourg tax system is that each tax is established by a separate legislative act. The main direct taxes are corporate income tax; personal income tax; a municipal tax levied by the state on behalf of the communes; and a property tax. Indirect taxes include VAT.
Luxembourg also has an annual registration tax (Taxe d’abonnement), registration and stamp duties (Droits d’enregistrement), import duties and excise taxes on fuel, tobacco, and alcohol. The only tax that municipalities collect themselves is the land tax (Impôt foncier- Grundsteuer).Luxury tax: Not applicable in Luxembourg.
Registration for VAT
VAT (Value Added Tax) is a levy on transactions related to economic activity paid by enterprises. However, businesses pass it on to customers in the form of price increases.
Businesses pay VAT in Luxembourg based on their total turnover.
VAT registration in Luxembourg is mandatory for businesses and individual entrepreneurs with an annual turnover of over 30,000 euros.
Those with a turnover of less than EUR 30,000 can register as a VAT payer at will. After registration, companies receive a Luxembourg VAT number, which can be used for commercial purposes.
Tax types
Direct tax
Corporate income tax (corporate income tax), personal income tax, council tax levied by the government on behalf of the communes, property tax, a land tax levied by municipalities independently.
Indirect tax
VAT, excise taxes on fuel, tobacco, alcohol.
The individual income tax rate in Luxembourg
Income tax in Luxembourg jurisdiction is set from 0% to 42% which depends on the actual income of the company. The country has a progressive tax rate which gradually goes higher when yearly income gets higher. The tax year in Luxembourg is one calendar year. Down below you can see tax rate data from 2020.
0 EUR - 1 889 EUR
| From | To | % |
| €0 | €11,265 | 0% |
| €11,266 | €13,173 | 8% |
| €13,137 | €15,009 | 9% |
| €15,009 | €16,881 | 10% |
| €16,881 | €18,753 | 11% |
| €18,753 | €20,625 | 12% |
20 625 EUR - 32 289 EUR
| From | To | % |
| €20,625 | €22,569 | 14% |
| €22,569 | €24,513 | 16% |
| €24,513 | €26,457 | 18% |
| €26,457 | €28,401 | 20% |
| €28,401 | €30,345 | 22% |
| €30,345 | €32,289 | 24% |
32 289 EUR - 43 953 EUR
| From | To | % |
| €32,289 | €34,233 | 26% |
| €34,233 | €36,177 | 28% |
| €36,177 | €38,121 | 30% |
| €38,121 | €40,065 | 32% |
| €40,065 | €42,009 | 34% |
| €42,009 | €43,953 | 36% |
43 953 EUR - 200 004 EUR
| From | To | % |
| €43,953 | €45,897 | 38% |
| €45,897 | €100,002 | 39% |
| €100,002 | €150,000 | 40% |
| €150,000 | €200,004 | 41% |
| €200,004+ | 42% |
Tax exemption in Luxembourg
Businesses can apply for tax exemptions if they agree to contribute to the structural development of a national or regional economy.
If approved, give a tax exemption of 25% of profits for the next 10 years.
Business in Luxembourg
Our company provides services for setting up a company in Luxembourg. The specialists of our company have the necessary knowledge, experience and qualifications. We can offer a consultation with taxes in Luxembourg. In addition, we also provide business support, accounting and other services necessary for your business. Our specialists have vast experience in this field of activity. We will be happy to help you successfully open a business in Luxembourg.
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