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 Luxembourg, you may be liable for corporate income tax in Luxembourg (impot sur le revenu des collectivites in French). 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.
Filing US taxes from Luxembourg
Despite the fact that every US citizen and Green Card holder is required to file a tax return with the IRS even when living abroad, many expatriates still fail to do so.
Many are unaware of these obligations, thinking that as an expat they do not need to pay or file tax returns in the US, but that’s incorrect. For more information and help filing your US tax returns from Luxembourg, contact Taxes for Expats and see our guide to taxes for American expats.
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 the highest rate taxpayers needing to pay at a rate of 42%. 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.
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 (société anonyme – SA) and limited liability companies (société à responsabilité limitée – SARL). Cooperative companies (société coopérative) 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 rates in Luxembourg are as follows:
- Businesses with taxable income below €25,000: 15%
- €25,000 – €30,000: €3,750 + 33% of the tax base above €25,000
- €30,000+: 18%
Businesses must also pay a 7% solidarity tax on the amount they owe. This takes the corporate tax rate for companies in the highest band to 19.26%.
On top of this, communes across Luxembourg income their own municipal business tax. In Luxembourg City, this is charged at 6.75%, meaning the overall combined corporate tax rate there is 26.01%.
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 (e.g., salaries, production costs, marketing costs, rental costs) you can also deduct the costs of any gifts/donations and tax losses from previous years to reduce your corporate tax rate in Luxembourg.
Businesses 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.
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 €40,000 for sole traders and partnerships (reduced to €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 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 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 €500 million and 0.05% on assets above €500 million.
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 €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 €30,000. You will need a VAT number for Luxembourg. Those with a turnover of less than €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, and rental costs.
VAT in Luxembourg is paid either monthly, quarterly or annually, depending on turnover. If annual turnover is less than €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.
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 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 of the business portal of the government website.