Tax situation in Luxembourg

Luxembourg offers obvious tax and payroll advantages, as seen by following examples:

Photo Impôts luxembourg

Social security contribution rate

Rates valid as of 01/01/2018

  • Employee rate : 12.45 %
  • Employer rate : 12.06 %

In addition : 

  • The contribution to the employeur health insurance (mutualité des employeurs) ranges from 0,46 % to 2,95 % depending on the contribution category (this contribution is due by the employer).

Main tax rates

Corporate tax

As of fiscal year 2018, this is set at :

  • 15%, when taxable income does not exceed € 25,000.-
  • € 3,750 plus 33% of the income exceeding € 25,000.- when taxable income lies between € 25,000.- and € 30,000.-
  • 18%, when taxable income exceeds € 30,000.-

A 7% surcharge is applied to corporate tax in order to finance the employment fund. Companies are required to pay a minimum tax, the amount of which is set on the basis of the last closing balance sheet.

Municipal business tax

The base rate is set by law, and is currently 3%.                                                                                                              

This base rate is then multiplied by the municipal rate in order to determine the business tax due. The municipal rate is set by each individual municipality in line with its financial needs.

Wealth tax

There is a fixed rate of 0.5% with a flat-rate minimum of :

  • € 62.50.- for an SA, SECA and SE, with a net asset value of at least € 12,500-.;
  • € 25.- for an SARL, with a net asset value of at least € 5,000.-.

Tax on dividends

A limited (capital) company (société de capital) must declare its profits for these to be subjected to corporate income tax before they are distribued to their partners/shareholders. When they distribute profits in the form of dividends to their partners/shareholders domiciled in Luxembourg, they are required to :

  • deduct withholding tax (retenue d'impôt à la source) at a rate of 15% ;
  • then to declare and pay the deducted withholding tax to the ACD (Administrations des contributions directes ) within 8 days of dividends being paid.

This 15% withholding tax constitutes an advance payment of income tax due by the beneficiary.

In principle, a non-resident partner/shareholder beneficiary receiving dividends must declare these to the tax authorities of his country of residence.

If the distributing company has applied a withholding tax rate higher than the one foreseen in the applicable tax treaty, the beneficiary may request reimbursement of the excess withholding tax from the ACD. A non-resident taxpayer may howewer, under certain conditions, opt to be handled as a resident Luxembourg taxpayer.

Investment tax credit 

Investments in commercial, industrial, mining or craft companies located in the Grand-Duchy of Luxembourg may, on request, benefit from a tax credit on corporate income. The credit consists of 2 parts:

1. Additional investment

The first credit amounts to 12% of the additional investment in tangible depreciable assets (other than buildings, livestock and mineral or fossil deposits) made in the course of the fiscal year in question.

The additional investment in that fiscal year is equal to the value allocated, at the close of the fiscal year, to the category of assets in question, reduced by the reference value of this category. The following assets, acquired during the fiscal year, do not howewer count:

- assets written off over a period less than 3 years;
- assets acquired by transfer and for a fee from a company;
- second-hand assets;
- individual assets acquired free of charge;
- certain motor vehicles.

The investment amount thus determined is then to be increased by the amortisation on the eligible assets acquired in the course of the fiscal year. The reference value (at least € 1,850.-) is determined by the calculated average of the values of these respective assets at the close of the 5 previous fiscal years. The additional investment thus calculated may not exceed the eligible investment made in the course of the fiscal year in question.

2. Overall investment

The second credit is granted for investments made in the course of the fiscal year.
The credit consists in:

A) 7% (6% up to 2010) for the first investment tranche not exceeding € 150,000.- and 2% (3% for 2011 and 2012) 2% up to 2010) for the investment tranche exceeding € 150,000.-.
The following investments are eligible:                                     

- depreciable tangible assets (other than buildings, the agricultural lively lifestock and mineral or fossil deposits);
- investments in sanitary and central heating installations in hotel buildings;
- investments in buldings built for social purposes.

B) 8% for the first investment tranche not exceeding € 150,000.- and 4% for the investment tranche exceeding € 150,000.-.
This credit applies to investments in capital assets approved for special amortisation.

The following are however excluded :

- assets normally written off over a period less than 3 years;
- assets acquired by transfer from a company;
- second-hand assets;
- certain motor vehicles.

However, second-hand assets are eligible for the investment tax credit up to an amount of € 250,000.- when they are invested by the taxpayer in the context of an initial establishment.