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Taxation in Luxembourg
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Taxation in Luxembourg

Business Taxation

The government is committed to maintaining relatively low income taxes and social insurance costs. The total corporate tax burden in Luxembourg is moderate by European standards. In addition to corporate income tax, companies are subject to a municipal business tax, net worth tax, capital tax and value-added tax.

Special tax regimes are available for securitisation vehicles (all remuneration paid, including dividends, is tax-deductible); SICARs (exempt on all income from securities and on transit funds); and (regulated) investment funds (SICAVs, SICAFs, FCPs). A new wealth management vehicle (SPF) succeeds the 1929 holding company that was repealed as from January 1st 2007, although existing entities benefit from a grandfathering clause until the end of 2010.

Taxable Income and Rates

Resident companies are subject to taxation on their worldwide income. Non-resident companies are subject to tax only on Luxembourg-source income. A corporate income tax rate of 22% applies to companies whose taxable income exceeds €15,000. Companies with income of €10,000-15,000 are liable for corporate tax of €2,000 plus 26% of the income slice exceeding €10,000. Companies whose income does not exceed €10,000 are taxed at 20%. A 4% surcharge for the employment fund applies to all companies.

A municipal business tax varies from 6% to 10.5%, depending on the location. For companies operating in the city of Luxembourg, the rate is 6.75%. A deduction of €17,500 applies to the municipal business tax base for entities liable to corporate income tax and €40,000 for other businesses.

Taxable Income Defined

Taxable income of companies resident in Luxembourg includes business income from all sources. Therefore foreign-source income, whether distributed or undistributed, is included in taxable income subject to any specific exemptions (participation exemption, treaty exemption). A company is deemed to be resident in Luxembourg if its registered office or principal establishment is in Luxembourg. Branches in Luxembourg are taxed only on local income, and no withholding tax applies to profit remittances.

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