Should you be paying corporate tax in Luxembourg, and if so, what is the tax rate? This guide provides key information on corporate tax rules, deadlines, and how to file.
Companies in Luxembourg must pay corporate tax on their profits, but how much you’ll need to pay varies on the type of company you run and how much money it makes. This guide includes information on:
- The corporate tax system in Luxembourg
- Who pays corporate tax in Luxembourg?
- Corporate tax rates in Luxembourg
- Corporate tax exemptions and corporate tax credits in Luxembourg
- VAT in Luxembourg
- Corporate tax year in Luxembourg
- How to file your corporate tax return in Luxembourg
- Other types of business tax in Luxembourg
- Tax fines and penalties for corporations
- Corporate tax advice in Luxembourg
The corporate tax system in Luxembourg
Expats in Luxembourg must pay corporate tax on any business income that doesn’t instead classify for personal income tax.
This includes income from limited companies, limited liability companies, and incorporated partnerships.
Companies based in Luxembourg pay corporate tax on income anywhere in the world, while those based outside of Luxembourg only pay the tax on income generated in the country.
If you work as a freelancer, sole-trader, or have a stake in an unincorporated partnership, you’ll usually pay income tax instead of corporate tax.
Who pays corporate tax in Luxembourg?
Corporate tax for sole traders
Freelancers and sole traders rarely need to pay corporate tax as their profits will be classified and taxed as personal income.
Self-employed freelancers or sole traders will have to submit their personal tax return once a year. They must then pay any tax owed to the Luxembourg Inland Revenue (Administration des contributions directes or ACD) as an individual.
Income tax rates in Luxembourg are split into 23 separate brackets. These range from 0% to 42%, with the top bracket reserved for earnings over €200,000.
Although sole traders do not pay corporate income tax in Luxembourg, they are liable to pay communal business tax, as well as property tax on any premises they own.
Corporate tax for partnerships
Partnerships, like sole traders, do not usually have to pay corporate tax.
This applies to both standard partnerships (société em nom collectif – SENC) and limited partnerships (société em commandite simple – SECS), where profits are taxed as personal income of the partners involved.
If the partnership is limited by shares, then corporate income tax will apply to shareholder profits.
The main business taxes paid by partnerships in Luxembourg are communal business tax, VAT, property tax, net wealth tax (if applicable), and a tax registration fee.
Corporate tax for limited companies
Limited company structures, where the business has been incorporated and exists as a legal entity in its own right, must pay corporate tax.
Owners of limited companies pay personal income tax on their salaries (and bonuses). Any additional profits must 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.
Limited companies in Luxembourg must also pay communal business tax, net wealth tax, VAT, property tax, plus the tax registration fee.
Corporate tax rates in Luxembourg
Businesses that make more than €200,000 a year in Luxembourg must pay corporate tax at a rate of 17%. This rate decreased from 18% in 2019.
Companies must also pay an additional solidarity tax. This is charged at 7%, and a municipal business tax in Luxembourg City charged at 6.75%.
This means that the effective corporate tax rate for higher-earning businesses in 2021 is 24.94%.
Companies with an annual income of less than €175,000 pay a lower corporate tax rate of 15% – resulting in an overall rate of 22.8%.
Those with earnings of between €175,001 and €200,000 must pay €26,250 plus 31% of the profit above €175,000.
Companies usually pay their corporate tax in advance every quarter, with installments in March, June, September, and December.
As these payments are made in advance, companies who are found to have overpaid claim the money back or have it deducted from future bills.
Corporate tax exemptions and credits in Luxembourg
Corporate tax is payable on net profits, minus any allowable business expenses.
In addition to standard expenses such as salaries, equipment, and office costs, you can deduct the costs of any gifts or donations and tax losses from previous years.
Corporate tax credits in Luxembourg
Businesses can get tax credits for the following:
- Audiovisual or venture capital investments
- Hiring unemployed individuals
- Investment in continued professional education
- Incentives for research and development
- Investment tax credit
- Foreign withholding taxes
Corporate tax exemptions in Luxembourg
Businesses in Luxembourg can apply for a tax exemption if they agree to contribute to the structural development of the national or regional economy.
If approved, companies can gain an exemption of 25% of their profits over the following 10 years.
VAT in Luxembourg
Value-added tax (VAT) is a tax on transactions relating to economic activity. VAT in Luxembourg is usually referred to by its’ French name, Taxe sur la Valeur Ajoutée (TVA). It is an EU tax payable by businesses. However, businesses pass it on to customers in the form of a price increase.
Businesses 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 €35,000.
Those with a turnover of less than €35,000 can also opt to register for VAT if they wish. Once businesses register, they 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 fuel
- Reduced rate of 8% on heating, lighting, clothes, hairdressing, cycles, and 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 must be filed annually. The deadline for filing a VAT return in Luxembourg is 1 March each year. Monthly and quarterly returns need to be submitted by 15th of the month.
Cross-border VAT in Luxembourg
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 there, 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 year in Luxembourg
The tax year in Luxembourg runs from 1 January to 31 December, with tax returns due by 31 May the following year.
Companies must submit their corporate tax returns by this date to be assessed by Luxembourg’s tax department.
How to file your corporate tax return in Luxembourg
Companies in Luxembourg can submit their tax returns either on paper to their local tax office, or online using the government’s portal.
Tax returns require the following supporting documents:
- Balance sheets
- Profit and loss accounts
- Table of fixed assets and depreciation
- Financial statements of overhead expenses
Other types of business tax in Luxembourg
In addition to corporate tax, there are some other taxes that businesses may need to pay.
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. This reduces 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-sur-Alzette, 9% in Troisvierges, and 6.75% in Luxembourg City.
This means that the combined rate of corporate and communal business tax for limited companies is 29.25% in Esch-sur-Alzette, 30% in Troisvierges, and 27.75% in Luxembourg City.
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. This is set at a rate of 0.5% on assets of up to €500 million and 0.05% on assets above €500 million.
This is a tax on a business’s property. 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.
Corporate tax fines in Luxembourg
Corporations that file late or fail to pay a tax return face a penalty of 10% of the tax due and a fine of up to €25,000. Deliberately filing incorrect or incomplete tax returns incurs an administrative penalty of between 5% and 25% of the incorrect tax. Omission or late payment of taxes can result in a penalty of 0.6% per month on the difference between the tax due and the advance payments made.
If the tax authorities have granted an extension of the payment deadline, penalties for late payment are levied from the fifth month following the initial payment deadline as follows:
- 0.1% per month in case of payments between five months and one year overdue
- 0.2% per month for payments between one and three years overdue
- 0.6% per month, for payments more than three years overdue
For repeated violations, corporations face a penalty of 10% (maximum €25,000) of the tax bill. Additional penalties and sanctions may apply in case of tax fraud.
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 réviseurs d’enterprises).
You can also find English-speaking accountants through the international directory of the business portal of the government’s website.
In addition to this, US expats in Luxembourg can get help with meeting their American tax obligations as a non-resident from Taxes for Expats.