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Luxembourg Capital Gains Tax - Guide for 2021

Capital Gains Tax in Luxembourg

Updated on Monday 02nd August 2021

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Capital-Gains-Tax-in-LuxembourgNatural persons and companies can earn money from various activities in Luxembourg. However, they can also obtain gains from the sale of assets they own. According to the tax regulations here, one must pay taxes based on the income he or she makes.
 
One of the most important taxes is the capital gains tax, which is levied on the disposal of assets, among which movable goods are imposed with the corporate tax in the case of companies and at progressive rates in the case of individuals.
 
The Luxembourg capital gains tax is imposed following specific regulations. Our lawyers in Luxembourg explain these rules and can also offer tax legislation advice so that you can obtain the maximum returns on your investment.
 

Determination of the base for the capital gains tax in Luxembourg

 
Just like in the case of other taxes, the capital gains one relies on the residency of the taxpayer. For this purpose, Luxembourg residents are taxed on their worldwide income, while non-residents on the incomes they obtain in the Grand Duchy. The same principle applies to companies.
 
If the personal income tax is imposed at progressive rates, companies must pay the corporate levy at the standard rate that also applied differentiated based on the profits of the business.
 
It should be noted that the Luxembourg capital gains tax applies under certain conditions, which is why it very important to pay attention to the regulations that apply when disposing of assets that fall under the incidence of this levy.
 
Our law firm in Luxembourg can help you set up a business in the Grand Duchy and benefit from all the tax advantages you can obtain through it.
 

The Luxembourg capital gains tax applied on individuals

 
Natural persons earning income from the sale of properties in Luxembourg must pay the capital gain tax at rates ranging between 0% and 45.78% only if thy have owned the respective goods for less than 6 months and their total value is above 500 euros. The tax in this form applies to movable assets.
 
If the respective assets are held for more than 6 months and the person owning them has a substantial material interest in them, they will be exempt from the Luxembourg capital gains tax.
 
Under the material interest principle, one must understand the following:
 
  • that the taxpayer as an individual has own more than 10% of the capital in a business;
  • the period during which the capital must have been held must be equal to 5 years;
  • material interest usually refers to shares in a company.
 
If the taxpayer disposes of such shares after the 6-month period mentioned above, the income derived from their disposal will be taxed as extraordinary income at a special rate of maximum 22.89% representing half of the average combination between the personal and corporate income taxes.
 
The Luxembourg capital gains tax can also apply to real estate sales, however, a person selling a property he or she uses as a main residence in Luxembourg is exempt from this levy. When it comes to other properties, however, the following must be considered:
 
  • the progressive tax rate applies if the property is sold before two years of ownership;
  • the reduced rate applies if the property is sold after two years of ownership;
  • if another property is bought with the funds obtained from the sale of the first one, an exemption from the capital gains can be obtained.
 
If you need details on how the Luxembourg capital gains tax applies to individuals, our tax lawyers are at your service.
 

The capital gains tax applied on companies in Luxembourg

 
Luxembourg companies are also subject to the capital gains tax that is levied as corporate profits or as losses. However, the payment of this tax can also be avoided on certain assets if the money obtained is used to purchase replacements for the sold ones.
 
The Luxembourg capital gains tax exemption is also available under the EU Parent-Subsidiary Directive, provided that the following requirements are met:
 
  • companies own at least 10% of the total share capital of their subsidiaries or;
  • the acquisition price of the 10% capital was at least 6 million euros and;
  • the company disposing of the shares had or plans on holding for a qualifying shareholding for a minimum period of 12 months.
 
In the case of non-resident companies, the capital gains tax is levied at the rates of the corporate tax, unless a double tax treaty contains different provisions.
 
In order to determine the payment of the Luxembourg capital gains tax, one is required to file an annual tax return with the Tax Authority.
 
If you need more information on the capital gains tax in the Grand Duchy, do not hesitate to contact our Luxembourg lawyers.