Taxes in Luxembourg
Luxembourg is a small, economically developed state located in the center of Europe. The largest number of investment funds and banks operate in Luxembourg. The state has made a lot of business opportunities for business persons around the world. Besides, the taxation system is loyal to businessmen.
There are many reasons why Luxembourg is good for business. One of them is taxes. Luxembourg has a low VAT rate; the tax rate here is one of the lowest in all of Europe – only about 27%. This is already including all the necessary payments and VAT. The government can offer a profitable business income tax, and other tax incentives.
Who pays tax
Freelancers and sole proprietors rarely need to pay corporate tax as profits are classified and taxed as personal income.
Self-employed freelancers or sole proprietors must file a personal tax return once a year. They then pay the taxes due to the IRS (Contributions Administration or ACD) as an individual.
Income tax rates in Luxembourg are divided into 23 groups. They range from 0% to 42%, with the top group reserved for incomes over € 200,000.
Although individual entrepreneurs do not pay corporate tax in Luxembourg, they are required to pay for utilities, for property in any premises they own.
Businesses are subject to pay taxes in Luxembourg.
Tax rates
Taxes in Luxembourg are balanced to ensure a combination of high living standards and social responsibility. The tax policy of the state is very effective in covering the main items of expenses, as well as the ability to provide favourable conditions for the development of entrepreneurship and attracting foreign capital to the country.
With non-resident companies, they pay taxes to the treasury only on profits that have been received from economic activities in Luxembourg – excluding foreign income.
| Tax | Tax Rate |
|---|---|
| VAT | 17% (Standard Rate) |
| Corporate income tax | 15% – 24.94% |
| Personal income tax | 0% – 42% |
| Dividend tax | 15% (withholding tax on dividends) – 0% (if participation exemption applies) |
| Capital Gains tax | 0% – 45.78% |
| Property tax | Varies by commune |
| Inheritance tax | 0% – 15%, with increases of 10% – 220% for estates over €10,000 |
| International tax | 24.94% (under CIT) |
| Cryptocurrency tax | 0.5% – 42% (under induvidual tax, corporate tax or NWT) |
Tax system
A feature of the Luxembourg tax system is that each tax is established by a separate legislative act. The main direct taxes are corporate income tax; personal income tax; a municipal tax levied by the state on behalf of the communes; and a property tax. Indirect taxes include VAT.
Luxembourg also has an annual registration tax (Taxe d’abonnement), registration and stamp duties (Droits d’enregistrement), import duties and excise taxes on fuel, tobacco, and alcohol. The only tax that municipalities collect themselves is the land tax (Impôt foncier- Grundsteuer).Luxury tax: Not applicable in Luxembourg.
Registration for VAT
VAT (Value Added Tax) is a levy on transactions related to economic activity paid by enterprises. However, businesses pass it on to customers in the form of price increases.
Businesses pay VAT in Luxembourg based on their total turnover.
VAT registration in Luxembourg is mandatory for businesses and individual entrepreneurs with an annual turnover of over 30,000 euros.
Those with a turnover of less than EUR 30,000 can register as a VAT payer at will. After registration, companies receive a Luxembourg VAT number, which can be used for commercial purposes.
Tax exemption in Luxembourg
Businesses can apply for tax exemptions if they agree to contribute to the structural development of a national or regional economy.
If approved, give a tax exemption of 25% of profits for the next 10 years.
Business in Luxembourg
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Disclaimer
Tax laws and regulations are frequently updated and can differ depending on personal situations. The information given here serves as general advice and may not represent the latest changes. It is strongly advised to seek the assistance of a qualified tax professional for precise and current guidance tailored to your circumstances.