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Wealth Tax in Luxembourg - financial assistance for capital entities

Wealth Tax in Luxembourg

Updated on Thursday 10th June 2021

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Wealth-Tax-in-LuxembourgLiving or owning a business in Luxembourg implies complying with various rules imposed by the authorities of the Grand Duchy, taxation being one of the most important.
 
The income tax is the main levy imposed on natural persons and companies with taxable activities in this country, however, these must also consider other taxes they need to pay.
 
One of these levies is the wealth tax which, contrary to other countries, in Luxembourg is imposed on certain companies. Below, our lawyers invite you to read on how this tax is applied here. You can rely on us for guidance in various tax legislation matters in the Grand Duchy.
 

The wealth tax in Luxembourg – who must pay it?

 
Also known as the net wealth tax in Luxembourg, this levy is applied only to certain types of companies, known as capital or opaque entities.
 
These are:
 
  1. private and public limited liability companies;
  2. partnerships limited by shares;
  3. European companies;
  4. opaque companies with equity in transparent companies.
 
The net wealth tax in Luxembourg is determined through the general tax base and implies the payment of a percentage established at the end of the year when companies are required to file their balance sheets that must comprise the value of the net assets these own.
 
In most cases, the term ‘opaque companies’ is used in the investment funds sector which in Luxembourg is very prolific, however, it is important to note that the wealth tax does not affect such funds.
 
Particularly, opaque companies are those taxed differently at corporate and shareholding levels. In other words, these entities are imposed with the corporate tax, while their shareholders are taxed after the profits of the business are distributed. However, special provisions may apply in the case of double tax treaties Luxembourg has entered.
 
Our law firm in Luxembourg is at the service of foreign investors who want to set up businesses in this country.
 

Determination of the Luxembourg wealth tax base

 
The wealth tax in Luxembourg is imposed just like the corporate levy based on residency. If domestic companies must pay it on the wealth held in the Grand Duchy and abroad, foreign companies will be applied the levy only on the assets held here.
 
There are three bases used to establish the net wealth tax. These are:
 
  • the general one which is determined every 3 years;
  • the new one which is determined before the end of the of 3 years, if the wealth increases or decreases;
  • the special tax base if the tax liability changes.
 
The special tax base implies a personal tax exemption that ends, or in the case of non-resident taxpayers who become Luxembourg residents and become liable to the net wealth tax in the Grand Duchy.
 
The special tax base implies the determination of the wealth at the beginning of a calendar year.
 
Our tax lawyers in Luxembourg are at your disposal with detailed information on the tax regulations imposed in this country.
 

Net wealth tax deductions in Luxembourg

 
In order to avoid double taxation, there are cases in which shareholders can be exempt from the payment of the net wealth tax in Luxembourg.
 
The following situations may be encountered:
 
  • in the case of natural persons who are shareholders in capital companies, tax exemptions of 50% on the distribution of gross dividends apply;
  • in cases where the Parent-Subsidiary Directive applies, the distribution of gross dividends benefits from full exemptions from the wealth tax.
 
In order to pay the wealth tax, companies must file their annual accounts which must comprise the balance sheets with the Inland Revenue Authority.
 
If you need legal advice related to the payment of the net wealth tax in Luxembourg, our lawyers are at your service, especially since new regulations associated with this levy have been imposed recently.
 

Payment of the net wealth tax in Luxembourg

 
The wealth tax is imposed at a rate of 0.5% on the taxable net wealth which is also known as the unitary value which can reach 500 million euros, in accordance with the Valuation Law applicable in Luxembourg.
 
The following aspects need to be considered with respect to the wealth tax:
 
  • if the taxable amount exceeds 500 million euros, the value of the wealth tax is 0.05%;
  • resident companies must pay a minimum of 4,815 euros if the total sum of their financial assets and other income sources exceeds 350,000 euros and 90% of the balance sheets;
  • resident companies may also be subject to a net wealth tax ranging between 535 and 32,100 euros depending on the total of their balance sheets.
 
If you want to set up a business in Luxembourg and need information on the wealth tax, do not hesitate to ask for support from our local lawyers.