Luxembourg legal and accounting and tax considerations in 2023
- All resident or foreign companies with a permanent establishment in Luxembourg are subject to corporation tax. Resident companies are taxed on their global revenue; non-resident companies are liable to tax only on their Luxembourg-sourced income following business registration in Luxembourg. A company is considered to be a resident taxpayer if its place of management is located in Luxembourg;
- Companies with taxable income of more than EUR 30,000 will be subject to a corporate income tax rate of 18%. Companies with taxable income of EUR 25,000 or lesser will be subject to a corporate income tax rate of 15%. As for companies with taxable income of more than EUR 25,000 but lesser than EUR 30,000, they will be subjected to corporate income tax of EUR 3,750 plus a 33% of the tax base above EUR 25,000;
- All Luxembourg companies submit annual accounting and tax obligations, including financial statements to the Registrar of Companies following Luxembourg company formation. The financial statements are not published and are exempt from annual audit if i) the total balance sheet is less than €3 million and ii) turnover is less than €6 million or iii) there is a single shareholder;
- The Luxembourg tax year is the calendar year. Companies must file a paper annual tax return before the 31st May of each year following Luxembourg business registration. The filing date may be extended upon request until the 31st October;
- Luxembourg has signed bilateral taxation treaties with more than 80 countries including China, Japan, Germany, Russia, UK and USA. Luxembourg has bilateral tax treaties with all EU Member States;
- It is important our Clients’ are aware of their personal and corporate bookkeeping and tax obligations in their country of residence and domicile and that they will fulfill those obligations annually. Let us know if you need Healy Consultants’ help to clarify your annual reporting obligations.
- Luxembourg has the lowest VAT standard rate in Europe;
- The current rates are:
- All other taxable goods and services
- Cleaning products
- Advertising services
- Supply of gas and electricity
- Cleaning services
- Food products
- Broadcasting services
- Financial, health and medical services
- Leasing of real estate
- International transport
- All Luxembourg business entities with the following criteria must register for VAT:
- Expected operating turnover of more than €30,000;
- Any non-tax residents that carries out services of delivery of goods that are subject to VAT regardless of their turnover;
- Any tax resident companies registered for VAT in another EU member state with turnover more than €100,000;
- Luxembourg entities importing goods from non-EU countries;
- Luxembourg companies enjoying services from a non-EU service provider. A service is deemed to be rendered in Luxembourg if the supplier or the Luxembourg company has a permanent establishment in Luxembourg;
- Intra-EU community acquisition of goods in Luxembourg.
- Filing obligations:
Turnover Lesser than or equal to € 112,000 More than € 112,000 but lesser than or equal to € 620,000 More than € 112,000 but lesser than or equal to € 620,000 Periodicity of declaration Annually Quarterly AND annually Monthly AND annually
- Annual VAT returns are due before March 1st or May 1st of the following year, while interim (monthly and quarterly) returns must be filed by the 15th day following the end of the reporting period;
- The VAT authority in Luxembourg is the Administration de l’Enregistrement et des Domaines. The VAT identification number for resident and non-resident businesses and taxable persons is a ten digit number in the format xxxx xxx xxx.
Who enjoys VAT exemption
- Pure Luxembourg holding companies usually are not allowed register for VAT, for example the SPF and Soparfi;
- Luxembourg companies supplying goods and services to non-EU companies need not charge VAT on these transactions;
- Luxembourg companies providing management services for investment funds enjoy VAT exemption;
- VAT exemption for most banking and insurance activities carried out by Luxembourg companies;
- Revenues generated from the lease and sale of real estate in Luxembourg.
VAT refunds in Luxembourg
- To apply for a VAT refund, a Luxembourg company must i) submit the application to the Administration de l’Enregistrement et des Domaines, ii) state the name and full address, an email address, and the business activity for which the goods and services are bought and iii) declare that no goods or services were delivered to Luxembourg, and iv) provide bank account details, the VAT number and tax reference number;
- The non-EU residents’ claims must cover one year and cannot have a value lower than €250. The application, signed by the company’s representative, must be deposited at the ‘Administration de l’Enregistrement et des Domaines’ followed by the VAT certificate from the state where the company is located, the original invoices, the import documents, a declaration that the applicant hasn’t made taxable supplies in Luxembourg, and a declaration that any amount that is in addition will be reimbursed to the Luxembourg VAT authorities.
Corporate tax exemptions
- A Luxembourg holding company (Soparfi) is legally tax exempt from all local duties including corporation tax, capital gains tax and withholding tax following business registration in Luxembourg. Subsidiaries of the Soparfi must be domiciled i) in a country with a corporate tax rate of at least 11% ii) in an EU member state or iii) in one of the 80 countries with a double tax treaty with Luxembourg;
- A Luxembourg financial assets holding company (SPF) is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- A Luxembourg Intellectual Property and Royalty Collection Company only incurs corporation tax of 6% and benefits from zero withholding tax on payments to non-residents;
- A Luxembourg Investment Funds Company is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- The sale of shares in a Luxembourg company is legally tax exempt from capital gains obligations. A Luxembourg holding company is legally tax exempt on dividend income and capital gains on sale of shares in a subsidiary company. A luxembourg holding company may be exempted to pay tax on dividend receives and capital gains if certain criteria is met;
- A non-resident trading branch of a foreign company is legally tax exempt from all local taxes including corporation tax, capital gains tax and withholding tax;
- A Luxembourg private equity (SICAR) is legally tax exempt for all income from bonds and equities. The SICAR law provides a full withholding tax exemption on dividends distributed to its shareholders. A SICAR must be authorized by the CSSF prior to commencing its operations.
Luxembourg withholding tax
- The EU Parent – Subsidiary Directive allows gross payments of dividends, interest and royalties between related companies in the EU;
- There are no withholding taxes on interest, royalties or technical service fees paid to non-residents, whether corporate or individual;
- Luxembourg company dividends are paid gross to resident and non-resident shareholders who are resident in an EU member state or to shareholders resident in one of the 60 countries with a double tax treaty with Luxembourg;
- Dividends distributed to offshore companies, trusts and individuals are subject to a withholding tax of 15%;
- Luxembourg banks and other Luxembourg Financial Service Providers are required to withhold tax at a rate of 35% from interest paid on the books of EU residents, unless the account holder has elected to send the following information to the tax authorities of the country in which they are residents: i) information about the period ii) the amount of interest paid and iii) the account holder’s identity.
Other tax considerations
- Luxembourg holding companies usually are not allowed register for VAT, for example the SPF and Soparfi.
- In order to comply further with OECD and EU requirements, Luxembourg issued in 2011 additional transfer pricing guidelines. Luxembourg companies realizing intra-group financing transactions must i) audit and document their finance margin and ii) evidence sufficient capital is put at risk to justify the margin and iii) must have a real presence in Luxembourg (e.g. a majority of local board members);
Legally tax exempt holding companies in Luxembourg
The majority of our Clients use Luxembourg tax-exempt holding companies for Luxembourg company formation, rather than as an EU trading hub. The table below compares the different holding companies:
Soparfi SPF IP Co Company tax on dividend income 0% 0% 0% Company tax on capital gains 0% 0% 0% Company tax on interest income 0% 0% 0% Corporate tax on royalty income 6% Not allowed 6% Corporate tax rate trading income 30% Not allowed Not allowed VAT registration required Yes No Yes Corporate bank account HSBC London HSBC Hong Kong HSBC Singapore Royalty withholding tax 0% 0% 0% Dividend withholding tax 5% 0% 0% Interest withholding tax 0% 0% 0% Allowed to own patents Yes No No Allowed to own real estate directly No No No Commercial trading allowed Yes No No Allowed to own subsidiaries Yes Yes Yes Corporate directors allowed Yes Yes Yes Corporate shareholders allowed Yes No No Minimum share capital €12,500 €12,500 €12,500 Minimum shareholders 2 2 2 Minimum directors 3 3 3 Audited accounts required No Yes No Annual tax return required Yes Yes Yes Luxembourg registered office Yes Yes Yes Public register of shareholders Yes Yes Yes Limited liability company Yes Yes Yes Double tax treaty benefits Yes No Yes EU directives benefits Yes No Yes Incorporation period 3 weeks 3 weeks 3 weeks Total company incorporation costs € 25,670 € 28,670 € 25,670
The tax exempt SPF holding company
- A Luxembourg SPF (Société de Gestion de Patrimoine Familial) is a private, global, family wealth investment vehicle specifically designed to meet the business needs of family-owned holding companies. Thus the exclusive object of the SPF is the acquisition, holding, management and disposal of international financial assets;
- Following the formation of the Luxembourg company, the SPF is legally tax exempt from i) Luxembourg corporate tax ii) withholding tax on distributions to shareholders iii) capital gains tax arising from the sale of SPF shares and iv) liquidation revenues from the SPF;
- An SPF is only allowed to receive dividends from listed companies in the EU. An SPF cannot own real estate, patents or intellectual property rights. However, the SPF can hold a stake in other structures which carry out or invest in such activities;
- The SPF is not allowed to engage in any commercial trading activity including i) trading goods and services ii) retail and wholesale iii) import and export or iv) earning fees of any kind. An SPF cannot engage in any administrative activity or financial services on behalf of third parties/affiliated companies. However, the SPF can hold a stake in other structures that perform such activities;
- An SPF neither enjoys the benefits of European Union Directives nor Luxembourg double tax treaties, nor can it register for EU VAT. Consequently, an SPF suffers withholding tax of 15% on directorship fees paid to non-residents;
- When dealing with subsidiaries, an SPF is prohibited from i) earning fees of any kind ii) managing subsidiary companies or rendering any kind of services and iii) granting interest bearing loans to subsidiaries;
- An SPF cannot be publicly traded on the Luxembourg stock exchange nor issue public bonds;
- Each year, an independent Luxembourg auditor must issue a certificate of non-objection to the Registry Administration if the SPF i) publishes its annual accounting and tax statements ii) observes the provisions of company law and iii) the company’s activity remains within the legal framework. Failure to comply with the same leads to cancellation of the SPF license;
- A Luxembourg SPF can be set up under the legal form of a public limited liability company (SA), a private limited liability company (SARL), a corporate partnership limited by shares (SECA), or a cooperative society. Only natural, individual shareholders allowed.
Audit RequirementsCompanies classified as small companies are exempted from audit. A company is defined as small if it does not exceed two out of the three criteria below for at least two consecutive years:
- Total assets: EUR 4.4M
- Net Turnover: EUR 8.8M
- Average number of employees: Up to 50 employees
Tax exempt investment funds in Luxembourg
- Luxembourg is the global leader for cross-border distribution of investment funds. With a market share in cross-border fund distributions amounting to 74.6% on a worldwide basis, Luxembourg is Europe’s largest center for investment funds and the 2nd largest investment fund center worldwide. Over 3,860 investment funds are registered in Luxembourg; 2,450 are umbrella funds with more than 11,990 different sub-funds;
- Luxembourg investment fund entities (SICAV and SICAF) are exempt from corporate income tax and capital gains tax. Luxembourg levies no withholding tax on distributions paid by investment funds, except where the EU Savings Directive applies regarding interest payments to EU residents;
- The financial sector is under the supervision of the ‘Commission de Surveillance du Secteur Financier‘ (CSSF). Registration of investment funds requires ministerial approval, while the CSSF is responsible for supervising funds
- Luxembourg investment funds have the following annual obligations:
- Annual reports must be certified by an auditor licensed in Luxembourg;
- Appoint a custodial bank headquartered in Luxembourg. The custodian monitors the fund’s assets, ensures that the issuance and re-purchase of stock and shares/stakes takes place in compliance with law and that revenues/profits are applied in a manner in accordance with the company’s articles of incorporation;
- Minimum capital may not be less than €1,250,000.
- Other Luxembourg investment fund conditions:
- The investment managers or consultants require certification/licensing by the oversight board for financial markets. There are no limitations regarding the nationality of the companies or individuals who administer the fund or perform consulting work;
- The Fund is only suitable for professional (institutional) investors, such as banks and insurance companies.
Legal and compliance
- The Registre de Commerce et des Sociétés is the official trade register of companies and associations in Luxembourg. Accessibility to the Luxembourg Trade Register is simple and the information available includes i) company address ii) name of shareholders and directors and iii) date of incorporation;
- The company directors are appointed, replaced and dismissed by the shareholders. The identities of shareholders and directors are on the public register;
- Luxembourg banks and other Luxembourg financial service providers are required to withhold tax at a rate of 35% from interest paid on the accounts of EU residents, unless the account holder has elected to send the following information to the tax authorities of the country in which they are resident: i) information about the payment period; ii) the amount of interest paid and iii) the account holder’s identity;
- All resident and non-resident Luxembourg companies must i) file a declaration at the Administration de l’Enregistrement et des Domaines and ii) submit annual financial statements to the Luxembourg trade register and iii) lodge an annual return confirming names and addresses of all directors, the principal place of business and details of shareholders and their shareholdings;
- The incorporation deed and articles of association of a Luxembourg company must be written in French or German and comprise i) the identity of the natural or legal person or persons by whom or on whose behalf the incorporation deed has been signed ii) the registered office iii) the corporate objects and iv) the amount of paid-up capital;
- The process of deregistering a company is dictated by the Government. This process will take a minimum of 6 months. Healy Consultants’ fee to project manage company de-registration is €1,450. During this 6 months period it is mandatory to maintain a resident company secretary and a legal registered office.