Luxembourg Business Services Overview
Setting up a Business in Luxembourg
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
Corporate income tax includes two taxes
applicable to the profits of a company:
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%.
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 is levied annually on total gross assets reduced by the debts
of the companies. The actual net worth tax rate is 0.5%.
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
Some transactions are exempt of capital duty in Luxembourg in cases of:
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
There are two types of Luxembourg Holding Companies:
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.
The regime "SPF" can be chosen by a company whose form must be:
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.
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
2) Entities known as managing patrimonial assets, resident or non-resident:
Contribution Duty of 1% at the constitution with possibilities of exemption:
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
Withholding at source on the interests paid on the advances and debts of the
SPF towards the individuals:
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.
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.).
According to scales with reduction and exemption following the situation of
No registration possible.
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
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
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
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.
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:
The conditions, which must be met in order to qualify for the exemption, are
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 the participation meets the conditions mentioned above it is also exempt
from net wealth tax in Luxembourg.
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).
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
The registered office and administration of the SICAR must be located in
Luxembourg. Nevertheless, there are no residency restrictions regarding the
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
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.
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.
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.
As at 1st June 2005