• Corporate law
• Taxation
• Double tax agreement
• Protection of confidentiality

TAXATION

Taxation of corporations

Types of taxation on earnings

• Corporate tax (at a rate of 22%)
• Surcharge for unemployment-insurance (compensation) fund on corporate tax: 4%
• Excise tax: 6.75%

         With that, total tax rate: 29.63% 

• Capital revenue taxes 

- Dividends payout: 15%
- Payments of licensing fees: 0%
- Interest payments: 0% (with exceptions)
- Payment of liquidation revenues or partial liquidation revenues:   0%

Other tax types (non-exhaustive)

• Corporate income tax of 1% on equity-capital deposits
• Assets tax of 0.5% on net assets
• VAT 15%
• No "Controlled Foreign Company" legislation
• No special regulations on the documentation of transfer prices 

Taxation basis for revenue taxes

• Principle of taxation of worldwide income; that is to say, all income types flow, in principle, into the taxation basis for corporations
• Taxation basis for corporate tax is, in principle, also the taxation basis for the excise tax, with the exception of certain additions and cuts    
• Principle that tax accounting should be based on commercial accounting applies here
• Foreign-financing ratio = 85:15

Exemption of dividends and sale profits, if (among other circumstances):

• Minimum stake: 10% or purchase price of 1.2 mil. € (for dividends), 6 mil. € for sale profits and 
• Minimum holding term: 12 months.  For dividends, it is sufficient if the holding is retained for a period of 12 months following the dividends payout
• The holding is in a fully taxable Luxembourgian corporation or EU-based corporation and indicated in the EC holding-subsidiary directive
• Expenses/payables which arise in a business correlation to tax-exempt income are not eligible for deduction
• Sale profits are only exempt insofar as they exceed previously declared and (see above) related expenses/payables or deductions indicated on the tax return

Exemption from capital-gains tax for dividends if (among other circumstances):

• Minimum holding 10% or purchase price of 1.2 mil. € for dividends and
• Minimum holding term: 12 months, it is sufficient when the holding is maintained for 12 months following the dividends payout
• The parent company is a Luxembourg-based, fully taxable corporation or EU- based corporation and is included in the EC parent-subsidiary directive

Avoidance of double taxation:

• Double taxation is avoided, in principle, by the offset of foreign withholding taxes, even if no double-taxation agreement is in effect
• Implementation of the parent-subsidiary directive: exemption instead of tax offset
• More than 50 double-taxation agreements are in effect:

-As a rule, compliant with the OECD model agreement 
-As a rule, the methods article in Luxembourg DBAs provides for  
 the avoidance of double taxation by exemption

Taxation of Funds

• Investment funds are exempt from corporate tax, excise tax and assets tax
• No exemption from capital-gains tax on dividends payouts received from domestic companies

This applies to all types of funds - that is to say, SICAV, SICAF and FCP, regardless if OGAW (Part I of the law from 2002), non-OGAW (Part II) or special funds for institutional and qualified investors, and regardless of the fund’s investment portfolio

• "Subscription tax" of 1-5 basis points is levied quarterly on the net inventory value of the investment fund
• The corporate tax is levied on a non-recurring basis, upon the establishment of the fund, and is limited to 1,250 €
• Dividends payouts and profits from redemptions by investment funds are not subject to capital-gains tax, unless the Directive EC/2003/48 ("Interest Directive") is applied
• Under certain circumstances, profits from sales of shares to SICAV / Fs are taxable
• A large number of Luxembourgian DBAs excludes the application to investment funds 
• Exceptions (among others):  Germany, China, Spain  

Taxation of SICAR

• As a rule, normally taxable company
• Subject to corporate tax and Excise tax
• Subject to non-recurring corporate tax of 1,250 €
• Exempt from assets tax and capital-gains tax
• Income from securities (referred to here as "valeur mobilière") is tax-exempt
• From Luxembourg’s perspective, DBA-authorised/eligible 

Taxation of securitisation companies

• As a rule, normally taxable company 
• Subject to corporate tax and excise tax
• Subject to non-recurring corporate tax of 1,250.00 €
• Exempt from assets tax and capital-gains tax
• Obligations towards investor deductible
• In Luxembourg’s terms, DBA-authorised/eligible

Taxation of private asset-management company (SPF)

• Capital-gains tax (1%, non-recurring) on deposited capital (N/A in 2008)
• Subscription tax of 0.25% annually on deposited capital (+ issuing bonuses)
• No DBA authorisation/eligibility
• No VAT registration
• Complete exemption from corporate tax, excise tax and assets tax
• No withholding tax on interest payments (restrictions apply to individuals)  
• No withholding tax on dividend payments (non-residents)
• No taxation of capital gains from sale of SPF shares (non-residents)
• No taxation of liquidations revenues from SPF (non-residents)

Taxation of ”Special funds SIF”

• As a rule, the special funds is no basis for capital-gains tax obligation in Luxembourg.
• As a rule, the special funds does not fall into the area of application for the EU interest directive.
• Annual subscription tax:  0.01%. Basis is the total amount of net assets of the special fund.
• Subject to non-recurring corporate tax of 1,250.00 (to be paid upon establishment). 

Taxation of Holding 1929

• Subscription tax of 0.25% annually on deposited capital (+ issuing bonuses)
• No DBA authorisation/eligibility
• No VAT registration
• Complete exemption from corporate tax, excise tax and assets tax
• No withholding tax on interest payments (restrictions apply to individuals)
• No withholding tax on dividend payments (non-residents)
• No taxation of capital profit arising from the sale of holding shares (non-residents)
• No taxation of liquidation revenues (non-residents)
• No new establishment possible; inventory protection until 31.12.2010.

Taxation of ”Soparfi” 

• Under certain conditions generated dividend, sales or liquidation profits from a subsidiary are income-tax-exempt
• Under certain conditions SOPARFI is exempt from the withholding tax on the dividends  
• Interest payments are not subject to withholding tax
• Payout of liquidation revenue is exempt from withholding tax
• DBA authorisation
• VAT registration

Taxation of real-estate companies

• As a rule, normally taxable company
• Under certain conditions, tax-exempt revenues from real-estate administration and tax-exempt profits from real-estate sales

Taxation of ”e-commerce” company

• As a rule, normally taxable company
• For deliveries / services to EU countries, the low Luxembourgian VAT rate of 15% applies

Taxation of EWIF

• no taxation 

Public corporate and investment allowances:

On the additional investments made in the course of the fiscal year, a tax credit of 10% will be granted.

Profits generated from new divisions, production processes and high-technology services receive a tax allowance of 25% during a period of up to eight years – for the corporate tax as well as the excise tax.

Companies with a tax domicile in Luxembourg (owners of certificates for audio-visual production) receive a credit of up to 30% of their taxable income.

Small and mid-sized companies receive an allowance of up to 10% of the expenses which arose in the context of an investment or re-organisation.

The state issues venture-capital investment certificates which grant a credit of up to 30% of the profits from new establishments entitled to allowances, new production sites or technologies, if these promote the further development of Luxembourg’s national economy.

Investments and re-organisations in designated regions of Luxembourg are supported with up to 25% of the costs.

Research and development projects receive aid in the amount of up to 100% of the costs.

Investments in the sectors of environmental protection and energy conservation receive aid in the amount of up to 25% of the costs.

The state grants reduced-interests loans to finance the export of goods, and grants loan guarantees to indemnify export risks.

Taxation of individuals

With a top tax rate of at most 38% for individuals, Luxembourg has the lowest privaten income tax rate within the EU.

For individuals, the assets tax has been repealed since 2006.

In principle, inheritance taxes only become due upon the death of a resident of the Grand Duchy of Luxembourg (2% to 48%).

An inheritance tax is levied if the deceased was not a resident of Luxembourg, but the owner of real estate which, as of the date of death, was located in Luxembourg (2%-5%, according to degree of kinship).

Residents of the territory pay a 10% withholding tax on capital revenues.