Lowest tax rates in Luxembourg

Luxembourg is a small country in Western Europe and it comprises of two principal regions: Oesling in the north part and Gutland in the south. It’s one of the smallest sovereign states in Europe and the only remaining grand duchy in the world.

Due to its central location in Europe, it always had a great strategic importance for numerous other countries that established commercial or financial business relationships with Luxembourg.

Low tax burden

Over the years, things have not changed and Luxembourg ranks 15th in the World and 3rd in the EU in terms of the ease of paying taxes. Regarding the total tax rate, Luxembourg is ranked with the lowest tax rate in the EU, with a ratio of 20.9%, which is why this small country offers a very competitive business environment for foreign investors.

Not only does Luxembourg offer low tax rates, but the legislation allows for flexibility in consolidating and structuring a company. For example, withholding taxes on payments of interests are not imposed, except for specific cases such as interest on profit participation bonds or payment of interest.

Luxembourg also offers industry – specific tax allowances regarding intellectual property, which only added in making the country an attractive business location. Luxembourg has a very low VAT rate, of only 17%, in comparison with other European countries, as well as very competitive social charges.

Low taxes for international corporate structures

Luxembourg maintains a wide network of double tax avoidance treaties with more than 70 countries from all over the world. This network is constantly expanding and the tax treaties are renegotiated and updated in order to best fit the changes in the economical climate of each country.

Asides from double tax treaties, Luxembourg offers other advantages for foreign companies operating in the country such as:

  • Low or zero withholding tax on dividend payments
  • Application of participation exemption rules to dividend income and capital gains made on the sale of shareholdings or on company liquidation
  • Specific tax incentives on intellectual property income and capital gains
  • Enabling of consolidation and management of international corporate structures in Luxembourg

Corporate taxes are moderate and are levied with flexibility. Not only is the VAT tax the lowest in the EU, but supplementary employment costs are amongst the lowest in the EU as well.

It’s also worth mentioning that Luxembourg’s size and easy access to neighboring countries keep consumer prices in check. This means that the living costs and the purchasing power of Luxembourg residents is one of the highest in Europe.

Tax incentives

Luxembourg offers tax credits for qualifying investments in companies operating in the country and for eligible assets physically used in another country within the EU area.

Under the intellectual property regime, 80% of the income derived from intellectual property rights acquired or created by a Luxembourg company, as well as gains from the disposal of intellectual property rights is exempt from income tax. Intellectual property rights acquired from a related party are excluded from the special regime.

Luxembourg is a great location for cross – border distribution on investment products. Investment funds may benefit from a wide range of exemptions such as no taxation on income and capital gains, no withholding tax under certain circumstances and no wealth tax. 

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