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Withholding Tax in Luxembourg

Withholding Tax in Luxembourg

Individuals and companies are subject to various taxes in Luxembourg. These are levied based on the sources of income they have, but also apply based on whether they are residents or non-residents of the Grand Duchy.

One of the most important levies to pay is the withholding tax in Luxembourg. It is applied under specific conditions in Luxembourg, as compared to other European countries, the tax authorities here do not impose it on all incomes.

Below, our lawyers in Luxembourg explain how the withholding tax is computed and retained in the Grand Duchy. You can rely on us for consultancy on tax-related matters in the Grand Duchy.

The main sources of income for the withholding tax in Luxembourg

The withholding tax is one of the most important levies in most countries around the world and it usually applies on the following incomes:

  1. dividends earned by natural persons and companies;
  2. interests obtained by all categories of taxpayers;
  3. royalties derived from intellectual property and other similar rights.

However, the withholding tax in Luxembourg is only levied on dividend payments and interests obtained or paid by individuals and businesses provided that certain conditions are met.

Luxembourg is a very appealing country from a taxation point of view, which is why if you want to start a business here, you can rely on our local lawyers for support.

The withholding tax applied to companies in Luxembourg

The withholding tax in Luxembourg does not apply to all resident and non-resident companies, as there are several aspects to consider. Among these, it should be noted that non-resident companies are subject to the withholding tax only if there is no double tax treaty between its country of residence and Luxembourg. However, where such a treaty exists, a reduced rate may apply.

In the case of resident companies and EU-based businesses, where the EU Parent-Subsidiary Directive applies, there will be no withholding tax imposed in Luxembourg, however, there are certain conditions to be met. The directive may also apply to companies domiciled in non-EU countries that have double tax agreements with Luxembourg.

When it comes to interest payments, Luxembourg resident agents are subject to the withholding tax if they are made to Luxembourg resident persons if the amount paid is above 250 euros. If the interest is paid by a foreign entity domiciled in an EU or European Economic Area (EEA) country, it may choose to pay the withholding tax in Luxembourg.

Our law firm in Luxembourg is at the service of foreign investors who want to set up businesses in the Grand Duchy in order to benefit from the tax advantages this country offers.

The rates of the withholding tax in Luxembourg

The standard rate of the Luxembourg withholding tax is 15%, however, there is also a 20% rate that applies to interest payments made by Luxembourg agents to other residents of this country. The 20% rate can also be chosen by foreign enterprises in EU and EEA countries if there is no tax agreement in place.

Here are the rates that apply when levying the withholding tax in Luxembourg:

  • resident companies are imposed the 15% rate when receiving dividends;
  • resident individuals will be imposed the 15% rate when receiving dividends and the 20% when obtaining interests;
  • in the case of non-residents, the 15% rate applies to those domiciled in non-treaty countries;
  • for those who are domiciled in treaty states, the rates vary between 0% and 15%.

If you need guidance on the payment of the withholding tax in Luxembourg, our tax lawyers are at your disposal for information.

Exemptions from the Luxembourg withholding tax for companies

According to the Luxembourg legislation, subsidiaries registered in Luxembourg are exempt from the withholding tax if:

  • the Parent-Subsidiary Directive applies to a collective enterprise;
  • the recipient is a Luxembourg company registered as a public company which pays its taxes in full;
  • the subsidiary is a permanent establishment of a collective enterprise.

Special tax regulations are imposed on Swiss companies, considering Switzerland is not an European Union member state.

In order to establish the amount of money to be paid as a withholding tax by an individual or company in Luxembourg, an annual tax return must be filed with the local authorities. In the case of non-residents, declarations must be submitted in Luxembourg and one’s country of residence in order to avoid double taxation.

If you need guidance on how the withholding tax is levied in Luxembourg and the advantages this country offers from a taxation point of view, do not hesitate to contact us.