Taxation in Luxembourg
Luxembourg’s taxation system is an intricate framework that is fundamental to the country’s economic strategy, aiming to balance revenue collection with growth and investment incentives. This system includes various taxes, each regulated by a detailed set of rules and rates. For businesses, investors, and individuals, a thorough comprehension of this environment is crucial for effective financial management and adherence to regulations.
Taxation system
Luxembourg’s taxation system is crafted to harmonize with its internal fiscal policies as well as its international responsibilities, providing a systematic yet flexible approach to taxation. It may incorporate a mixture of flat rates, progressive tax brackets, and specific exemptions, mirroring the nation’s economic goals and social aspirations. Grasping the complexities of these tax structures is crucial for maximizing financial results, maintaining compliance, and capitalizing on opportunities within the legal framework.
Capital gains tax
In Luxembourg, capital gains from selling movable properties are taxed at progressive income tax rates ranging from 0% to 45.78% if the holding period is less than six months and the total gains exceed EUR 500. If the holding period exceeds six months, capital gains are not taxed unless the individual holds a significant participation. Gains from disposing of significant participation after six months are taxed as extraordinary income at half the average combined tax rate, with a maximum of 22.89%. Gains from the sale of the main residence of the taxpayer are exempt from tax. The speculation period will be lengthened from 2 years to 5 years, and the tax rate will be lower if the sale occurs more than two years after the property was acquired.
Corporate taxation
Luxembourg imposes taxes on its corporate residents based on their global income, while non-residents are only taxed on income sourced from Luxembourg. Companies with a taxable income of up to EUR 175,000 face a tax rate of 15%. For income ranging from EUR 175,000 to EUR 200,001, the tax amounts to EUR 26,250 plus 31% of the income that exceeds EUR 175,000. Any income over EUR 200,001 is subject to a tax rate of 17%, resulting in an overall tax rate of 24.94% in Luxembourg City, which includes a 7% solidarity surtax and a 6.75% municipal business tax.
Personal income taxation
Luxembourg implements a progressive taxation system, where rates vary from 0% for income under EUR 12,438 to 42% for income exceeding EUR 220,788. Additionally, a solidarity tax of either 7% or 9% is applied based on income thresholds. Tax classes are determined by marital and residency status, which can greatly influence the applicable tax rate.
Dividend taxation
In Luxembourg, resident taxpayers face a withholding tax of 15% on the gross amount of dividends they receive from companies. For dividends from foreign companies, the withholding tax applies according to the laws of the country where the company is based and any applicable tax treaties. Dividend income is required to be declared on the tax return and is taxed at progressive rates between 0% and 42.8% or 43.6%, in addition to a 1.4% contribution for long-term care insurance.
Property tax
In Luxembourg, property tax is determined by the cadastral income of the property, reflecting an estimate of its rental value. Each municipality establishes its own tax rate, which is applied to this cadastral income. The tax rates and precise calculations vary according to the property’s classification and location, including residential, commercial, or agricultural categories. Collection of the tax occurs at the communal level, with payment schedules tailored to the amount owed.
Inheritance taxation
Luxembourg employs a progressive inheritance tax system that takes into account the relationship to the deceased as well as the estate’s value. Tax rates differ, beginning at 0% for direct heirs concerning their legal share, and reaching up to 15% for individuals not related to the deceased. Higher value estates incur further tax escalations. The calculation of inheritance tax is based on the net value of the estate, determined by subtracting liabilities, including debts and funeral expenses, from the total assets. The AED authority is responsible for the assessment and collection of inheritance taxes.
International taxation
The international tax framework in Luxembourg is managed through a mix of local legislation, European Union regulations, and agreements to prevent double taxation. Residents are subject to corporate tax on their global income, while non-residents are taxed on income sourced from Luxembourg. Transfer pricing regulations comply with OECD guidelines, and there are specific provisions for cross-border payments, which can benefit from exemptions and deductions under the participation exemption regime in Luxembourg. Additionally, the country has implemented various directives aimed at combating tax avoidance and has ratified the OECD’s Multilateral Instrument (MLI).
Cryptocurrency taxation
Luxembourg utilizes its standard tax regulations for crypto-assets, distinguishing income as either business profits (for active trading or mining) or miscellaneous income (for private wealth management). The tax implications differ based on the activity: short-term trading is taxed as speculative income, whereas holding assets for a longer duration might lead to tax exemptions. Corporate investors face taxes on gains from selling crypto-assets and are liable for NWT. Both individuals and corporations are required to keep comprehensive records of their crypto transactions for tax purposes, and certain taxable events such as mining, staking, and airdrops can result in further tax liabilities.
VAT system
Luxembourg’s VAT framework features a standard rate of 17%, which is among the lowest in the EU. Specific goods and services, including food, books, and certain energy products, are subject to reduced rates of 3%, 8%, and 14%. Businesses that surpass the annual turnover limit must register for VAT.
Our taxation solutions
In a tax landscape that is always changing, professional advice is essential. Our firm provides a range of specialized tax solutions customized to address the varied requirements of individuals, corporations, and investors in Luxembourg. We aim to tackle the intricacies of the tax code, reduce liabilities, and guarantee complete compliance with regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
In the intricate realm of taxation, seeking professional guidance can greatly impact your situation. Reach out to us today to arrange a meeting with our tax specialists. We will collaborate closely with you to create a customized tax strategy that meets your goals and guarantees complete adherence to the regulations in Luxembourg.
Disclaimer
Tax laws and regulations are frequently updated and may differ depending on personal circumstances. The information presented here serves as general guidance and might not represent the latest changes. It is strongly advised to seek the assistance of a qualified tax professional for thorough and current advice tailored to your needs.