Tax Laws in Luxembourg

2. europa.eu/youreurope/citizens/work/taxes/income-taxes-abroad/luxembourg/index_en.htm In addition, Luxembourg has adopted several laws on the mandatory automatic exchange of information in the field of taxation. UCITS, SICARs, SIFs and RAIFs all have specific legal regulations and are subject to so-called product laws. On the other hand, an investment fund can also be established as an unregulated structure that is not subject to product law. However, they may not constitute compartments and benefit from tax advantages only if they can be considered as alternative investment funds within the meaning of the Alternative Investment Fund Managers Directive. Tax treaties harmonize many tax laws between two countries and aim to reduce double taxation, including by reducing or eliminating withholding tax between countries. Countries with more treaty partners have more tax regimes for foreign investment and are more competitive than countries with fewer treaties. In Luxembourg, there are no specific laws (or other legal references) dealing with undercapitalisation, which is informally defined as the excess of debt over equity, with the exception of transfer pricing rules. I. The recipient company is either a full-rate taxable company resident in Luxembourg, or a company referred to in Article 2 of the Parent-Subsidiary Directive, or a Luxembourg permanent establishment or a company resident in a country which has concluded a double taxation convention with Luxembourg and is subject to a tax equivalent to Luxembourg corporation tax (i.e. 50% of the Luxembourg corporate tax rate on a taxable basis). comparable to the Luxembourg tax base).

rules); and the corporate income tax (IRC) is a special proportional tax levied on the profits of certain corporations (including corporations) during the fiscal year. Companies domiciled in Luxembourg are generally subject to the CIT, MBT and TNO and can benefit from the country`s double taxation treaties. Some employers offer a system where they subsidize mortgage interest/personal loans paid during the year up to certain limits and these payments are exempt from taxes and Social Security. Luxembourg is a founding member of the EU and seat of the Court of Justice of the European Union (CJEU). Luxembourg is bound by EU institutions, legislation and case law. In order to neutralise these differences under ATAD1 and ATAD2, Luxembourg may be obliged to refuse to deduct payments, expenses or losses, to include payments as taxable income or to refuse exemption from double taxation. iii. The recipient company holds a direct participation in the share capital of the distributing company of at least 10% or with a purchase price of at least € 1,200,000 for an uninterrupted period of 12 months or undertakes to maintain this minimum participation during this minimum period.

There is a 7% solidarity surcharge levied on corporate tax. For companies whose taxable income is greater than €30,000, the cumulative corporate tax rate is 19.26% (18% + 7% × 18%). Persons who are (i) taxpayers resident in Luxembourg or (ii) non-resident taxpayers receiving income from Luxembourg sources are subject to income tax (“IRP”) in Luxembourg. The following income is subject to income tax in Luxembourg: Persons residing in Luxembourg are taxed on their worldwide income as if it had been earned in Luxembourg. Non-resident natural persons are taxed only on their Luxembourg income, while residents of one year are taxed at a percentage equal to the rate at which they would be taxed if all their income were earned in Luxembourg. Non-residents may choose to be treated as if their income came entirely from Luxembourg if at least 90% of all income comes from Luxembourg sources (50% for natural persons residing in Belgium). Among regulated funds, undertakings for collective investment in transferable securities (UCITS) are aimed at retail investors. The other three fund vehicles available are generally aimed at professional/institutional investors: indirect taxes (VAT and registration fees) are the responsibility of the Registration and Estates Authority and VAT. However, if the foreign income is generated in a country that has concluded a tax treaty with Luxembourg to eliminate double taxation, the foreign income is exempt from Luxembourg tax if it was generated by a permanent establishment.

Interest falling within the scope of the amended law of 23 December 2005 introducing a definitive withholding tax on interest income paid by Luxembourg paying agents to natural persons resident in Luxembourg is subject to a definitive withholding tax of 20%. Under certain conditions, interest paid by paying agents established in the EU/EEA may be subject to an optional definitive self-payment of 20%. An annual deduction of up to €4,020 is possible if the taxpayer provides more than 50% of the maintenance of children living outside his household. Non-resident companies: Luxembourg considers a company to be resident if its registered office is located outside the country. The Grand Duchy of Luxembourg is located in the heart of Western Europe and enjoys many years of political, social and fiscal stability. Luxembourg is rated AAA by all three major rating agencies and is generally at the forefront of cross-border trade and international investment. and is one of the most important financial centers in the world. In terms of assets under management, Luxembourg is the largest investment fund centre in Europe and the second largest in the world after the United States. The Grand Duchy`s flexible and investment-friendly tax and legal systems have made it an important hub for investment funds and the formation of pan-European holding platforms.

Luxembourg is also an important location for private banking. For jointly taxed couples who both work, an allowance of up to €4,500 can be deducted from taxable income. This is usually included in the payroll of the second spouse. The Luxembourg government offers a series of guides on how tax issues work in French, English and German. The Luxembourg Luxembourg Direct Tax Administration, known as the Luxembourg Direct Tax Administration (“DCA”), uses French, German and Luxembourgish, the official languages of the Grand Duchy of Luxembourg. In principle, official languages should be used for administrative, procedural, non-procedural and judicial matters. For specific questions, communication with the CDA is possible in English. Some of the tax forms are also available in English. Transfers and contributions of movable or immovable property located outside Luxembourg are not subject to registration. Since 2018, married couples can decide whether to opt for separate or joint taxation. Luxembourg companies are subject to corporate tax on their worldwide profits.

The CIT is governed by the ITA of December 4, 1967, as amended. Mutual funds are exempt from CIT, MBT and NWT (with the exception of SICAR and RAIF-SICAR, which are subject to CIT, MBT and NWT minimum), but are subject to annual subscription tax based on their overall net asset value. 3. eur-lex.europa.eu/legal-content/EN/ALL/?uri=celex%3A32006L0112 Each type of company has specific characteristics relating to the formation of the company, its partners, its management and its taxation. Interest received by a Luxembourger from a Luxembourg company is subject to a withholding tax of 20%, which is the final tax on this income. Interest income outside the 20% rule is taxable via the tax return at marginal tax rates. The activities of UCITS, UCITS, FIS, special purpose vehicles and AIFs/AIFs and their management are in principle exempt from VAT. The notion of management services to such entities generally includes the day-to-day management of investment portfolios and the provision of investment advice, but excludes supervisory and control services provided by a depositary.