Corporate tax in Luxembourg

Corporate tax in Luxembourg

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Should you be paying corporate tax in Luxembourg, and if so, how much? If you're a freelancer or sole trader in this small but mighty country it is likely you'll need to have an understanding of the corporate tax rate, a VAT number and knowledge of the corporate income tax rates in Luxembourg. This guide provides some key information to get you started.

If you run a business in here, you may be liable for corporate income tax in Luxembourg (impot sur le revenu des collectivites). Businesses in Luxembourg also have to pay Communal Business Tax if profits are above a certain amount.

This guide provides information about the basics to get you started and ensure you avoid paying any unnecessary fines. 

Who pays corporate tax in Luxembourg? 

Corporate tax in Luxembourg is payable on business income not taxed through personal income tax. In Luxembourg, this applies to limited companies including public limited companies, limited liability companies and partnerships limited by shares. 

Business income that is made by freelancers, sole traders and unincorporated partnerships will usually be taxed through personal income tax rather than corporate income tax in Luxembourg. 

Companies subject to corporate tax in Luxembourg that are resident in Luxembourg pay tax on their worldwide income. Companies based abroad that operate in Luxembourg through a branch or subsidiary will pay corporate tax only on income generated in Luxembourg. 

If you run a business or are self-employed in Luxembourg, whether your profits are taxed as personal or corporate income, you need to register with the Luxembourg Inland Revenue (Administration des contributions directes – ACD). 

See our guide to taxation in Luxembourg for more information on who qualifies as a tax resident in Luxembourg.

Corporate tax in Luxembourg for freelancers and sole traders

Corporate tax in Luxembourg for freelancers and sole traders rarely applies as profits made will be classified and taxed as personal income. If you are self-employed as a freelancer or sole trader in Luxembourg, you will have to submit your personal tax return and pay any tax owed to the ACD as an individual. Income tax rates in Luxembourg are progressive, with no tax paid on the first EUR 11,264 of earnings rising up to 40% paid on earnings over EUR 100,000. See our guide to taxes in Luxembourg for more information. 

Although sole traders do not pay corporate income tax in Luxembourg, they are liable for a communal business tax, as well as property tax on any property owned.

Luxembourg corporate tax rate

Corporate taxes for partnerships in Luxembourg

Partnerships, like sole traders, do not usually have to pay corporate tax in Luxembourg. This applies to both standard partnerships (societe em nom collectif - SENC) and limited partnerships (societe em commandite simple - SECS), where tax on profits are paid as personal income tax of the partners involved. If the partnership is limited by shares, then corporate income tax will apply to shareholder profits. 

Business taxes paid by partnerships in Luxembourg are communal business tax, VAT, property tax, net wealth tax (if applicable) along with a tax registration fee. 

Corporate taxes in Luxembourg for limited companies

Limited company structures, where the business has been incorporated and exists as a legal entity in its own right, have to pay corporate tax in Luxembourg. This applies to all profits made by the business once all business costs have been paid. Owners in limited companies will pay personal income tax on their salaries (and bonuses) and any additional profits have to be declared for corporate tax in Luxembourg. 

This applies to public limited companies (societe anonyme – SA) and limited liability companies (societe a responsabilite limitee – SARL). Cooperative companies (societe cooperative) also pay corporate tax in Luxembourg. 

Limited companies in Luxembourg also pay communal business tax, net wealth tax, VAT, property tax plus the registration fee. 

See our guide to starting a business in Luxembourg for more information on types of company structure in Luxembourg.

Corporate tax in Luxembourg: The rates

The current corporate tax rate in Luxembourg is 20% on taxable income below EUR 15,000 and 21% on taxable income above EUR 15,000. The amount payable is increased by 7% as a contribution to the employment fund (11). This takes the average corporate tax rate in Luxembourg up to around 22.4%, which is below the global average of 24.29% and slightly above the EU average of 21.51%.

VAT number Luxembourg

How and when to pay corporate tax in Luxembourg

The tax year in Luxembourg runs from 1 January to 31 December. The corporate tax return date in Luxembourg is 31 May. Companies liable for corporate tax must submit their corporate tax returns in Luxembourg declaring the taxable income to the ACD before this date each year. The ACD will then assess the tax return and calculate tax owed.  

Corporate tax returns in Luxembourg need to be filed along with supporting documents including: 

  • balance sheets
  • profit and loss accounts
  • table of fixed assets and depreciation
  • financial statements of overhead expenses

 

Corporate tax returns in Luxembourg can be submitted online or on paper. Paper copies should be sent to the local tax office

Businesses subject to corporate income tax in Luxembourg usually pay in quarterly provisional advance instalments in March, June, September and December. In instances of provisional payments leading to an overpayment, reimbursements can be made to the company bank account or the amount can be deducted from future bills. 

Corporate tax in Luxembourg: Deductions, credits and exemptions

Corporate tax in Luxembourg is paid on net profits (i.e. gross turnover minus all allowable business expenses). In addition to business-related expenses (salaries, production costs, marketing costs, rental costs, etc.) you can also deduct the costs of any gifts/donations and tax losses from previous years to reduce your corporate tax rate in Luxembourg. 

Business in Luxembourg can also get tax credits on: 

  • audiovisual or venture capital investments
  • hiring unemployed individuals
  • investment in continued professional education
  • incentives for research and development
  • investment tax credit
  • foreign withholding taxes 

 

Businesses in Luxembourg can apply to be tax exempt if they agree to contribute to the structural development of the national or regional economy. This makes them eligible for tax exemption on 25% of their profits for a 10-year period. 

Luxembourg income tax calculator

You can calculate the amount of corporate tax to pay in Luxembourg on the business portal of the government website here. 

Corporate income tax Luxembourg

Other types of business tax in Luxembourg 

In addition to corporate income tax in Luxembourg, there are a few other business taxes in Luxembourg that businesses have to pay if they are liable to them. 

Communal Business Tax 

This is a local municipal tax payable to help municipalities finance their costs. It is payable by all businesses subject to corporate income tax in Luxembourg as well as sole traders and partnerships that make an operating profit. There is an allowance of EUR 40,000 for sole traders and partnerships (reduced to EUR 17,500 in instances where they are liable for corporate income tax). 

The rate of communal business tax in Luxembourg is 8.25% in Esch/Alzette, 6.75% in Luxembourg and 9% in Troisvierges. This means that the combined rate of corporate and communal business tax for limited companies is 29.25% in Esch/Alzette, 27.75% in Luxembourg and 30% in Troisvierges.

Net Wealth Tax 

This is a tax that applies to limited companies as well as partnerships limited by shares if one of the shareholders is a limited company. The tax is on a company's net assets and is set at a rate of 0.5% on assets of up to EUR 500 million and 0.05% on assets above EUR 500 million. 

Property tax 

A tax on property owned by the business. The tax rate is set at a regional level by the municipalities and is based on the value and nature of the property. 

Tax registration fee 

This is a one-off payment made by limited companies and partnerships at the time of registering for tax purposes. The amount can vary but is usually around EUR 75. 

VAT and VAT numbers in Luxembourg 

VAT (value added tax) in Luxembourg was created in 1970. It is a tax on transactions (goods and services) connected with an economic activity. It is an EU tax payable by businesses but passed on to customers in the form of a price increase. 

Businesses are pay VAT in Luxembourg based on their overall turnover. VAT registration in Luxembourg is compulsory for businesses and self-employed traders with an annual turnover of more than EUR 30,000. You will need a VAT number for Luxembourg. Those with a turnover of less than EUR 30,000 can opt to register for VAT if they wish. Once businesses have registered, they will receive a VAT number in Luxembourg which can be used for trade purposes. 

There are four VAT rates in Luxembourg

  • Normal rate of 17%
  • Intermediary rate of 14% on alcohol, fuel and petrol
  • Reduced rate of 8% on heating, lighting, clothes, hairdressing, cycles, cleaning related to private households
  • Super-reduced rate of 3% on food, soft drinks, children's clothes, books, medical products, water, rental costs, etc.

 

VAT in Luxembourg is paid either monthly, quarterly or annually, depending on turnover. If annual turnover is less than EUR 112,000 then returns are filed annually. The deadline for filing a VAT return in Luxembourg annually is 1 March. Monthly and quarterly returns need to be submitted by 15th of the month. Returns can be submitted online here.  

Cross-border VAT in Luxembourg 

There are EU rules regarding the charging of VAT to customers and businesses both inside and outside the EU. If you have a business in Luxembourg and sell goods or services to a consumer in another EU country, you need to register for VAT purposes in that country and charge the VAT rate applicable in that country, unless the total value of your sales to that country falls below a certain amount. 

If you sell goods or services to another business based within the EU, you do not charge VAT if they have a valid VAT number. You can charge at the Luxembourg rate of VAT if they do not have a VAT number. 

No VAT is charged to any customers outside the EU, although any VAT you have paid on related expenses can be treated as a deduction. 

See the European Commission's cross-border VAT rules and guidelines for VAT in the European Community for more information. 

Corporate tax advice in Luxembourg 

You can find a tax accountant to help you with your corporate tax in Luxembourg through the Institute of Corporate Auditors (Institut des reviseurs d'enterprises). You can also find English-speaking accountant through the international directory on the Institute of Chartered Accountants in England and Wales (ICEAW) website here. 

Further information 

 

Click to the top of our guide to corporate tax in Luxembourg.

 

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