With regard to tax matters, the Luxembourg legal framework is relatively stable compared to other European jurisdictions.Each year, some of the significant changes in the Luxembourg tax landscape are typically introduced by the so-called budget law. For instance the 2023 budget law provided key clarifications with respect to the reverse hybrid rules, clarified the scope of the Relibi law and extended the deadline for filing the personal income tax returns and corporate income tax (“CIT”) returns from the 31^st of March to the 31^st of December of each year.In addition, several other important tax measures were brought forward (e.g., the adoption of the law of 22 December 2023 implementing Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU (“Pillar 2”), the ratification of the new Luxembourg – UK double tax treaty, the modification of the investment tax credit, the introduction of a draft law with additional transfer pricing documentation requirements).

Furthermore, in 2024 two material tax changes were adopted by the laws of 20 December 2024 (Mémorial A No. 563 of 23 December 2024 and Mémorial A No. 589 of 24 December 2024): (i) the adaptation of the existing minimum net wealth tax (“NWT”) regime following the judgment of the Luxembourg Constitutional Court of 10 November 2023 (case n° 00185) deeming unconstitutional certain elements of that regime, reorganising and simplifying the minimum NWT brackets by basing them exclusively on the taxpayer’s balance-sheet total (EUR 535 for a balance-sheet total of up to EUR 350,000, EUR 1,605 for a balance-sheet total between EUR 350,000 and EUR 2,000,000, and EUR 4,815 above EUR 2,000,000), and (ii) the decrease of the CIT rate from 17% to 16%. Both measures entered into effect as from 1 January 2025.

More recently, the Budget Law for 2026 was adopted in December 2025. In addition, the carried interest tax regime was reformed by the law of 3 February 2026, which provides clarity on the applicable conditions and eligible persons and produces its effects as from the 2026 tax year.

With regard to the legislative process, usually tax law amendments are embedded in the budget law. The budget law is submitted to the Luxembourg parliament in fall or winter of each year.

Luxembourg laws may be submitted to the Parliament’s vote either:

1. by way of a draft bill issued by a member of the government or
2. by a law proposal introduced by one or several members of Parliament.

In both cases, the amendment is assigned to one or more parliamentary commission(s). Further, the bill is discussed

and may be amended upon request of at least five members of the Parliament. During the parliamentary process, several professional organisations and the Council of State may produce comments, which are often taken into account in the final bill. The bill must be voted twice with a 3 month interval minimum by the Parliament. The second vote may be disregarded if the Council of State gives its approval. Following the approval of the Parliament and of the Council of State, the Grand Duke signs and passes the law which enters into force 3 days after its publication in the official gazette unless the law states otherwise.

1) Maintenance of records

Kind of document	Deadline	Maintenance of records
Annual accounts:   To be approved and filed with the Trade and Companies Register (Registre de Commerce et des Sociétés)	Approval by the shareholders’ meeting or the partner’s meeting (if applicable) – within 6 months after the end of the calendar year for companies, – At the end of the financial year for natural persons; Filing with the RCS within 1 month after the approval	10 years after the end of the financial year
Indirect taxes:   – invoices and documents relating to deliveries or acquisitions of goods or services   – VAT summary statement:	– Filings before the 1st of May of the year following the taxable period – Filings may be made on a quarterly basis if the quarterly amount is below EUR 50,000	10 years after the end of the financial year
Direct taxes:   – Annexes to the tax returns	To be filed with the tax return (see below)	10 years after the end of the financial year

2) Taxes

Taxes	Taxpayer	Relevant tax authority	Deadlines	Frequency
Personal income tax	– Natural persons – Partnerships – Sole proprietorships	Administration des Contributions Directes (ACD)	Before the 31st of December of the following calendar year	Yearly
Corporate income tax	Capital companies	ACD	Before the 31st of December of the following financial year	Yearly
Municipal business tax Proprietorship	– Capital companies – Partnerships and sole proprietorships	ACD	Before the 31st of December, together with the corporate income tax return	Yearly
Net wealth tax	– Capital companies	ACD	Before the 31st of December of the current year.	Yearly
VAT	VAT taxpayers (incl. companies, individuals carrying on a business activity, landlords if they have opted for VAT). If the turnover is:	Administration de l’enregistrement, des domaines et de la TVA (AED)
	< EUR 112,000		Before the 28th of February (with the 31st of October as administrative tolerance);	Yearly
	> EUR 112,000 < EUR 620,000		Before the 15th of January, April, July and October (+ 2 additional months administrative tolerance) with an annual return to be filed before the 30th of April (with the 31st of December as administrative tolerance);	Quarterly and yearly
	> EUR 620,000		Before the 15th of each month (+ 2 additional months administrative tolerance)	Monthly and yearly
	VAT taxpayers performing only VAT exempt activities not entitling to input VAT deduction right that receive services (or to some extent goods) from suppliers established outside Luxembourg		Before the 28th of February (with the 31st of October as administrative tolerance);	Yearly
Subscription tax	Special Investment Funds Family wealth companies (SPFs)	AED	Before the last day of March, June, September and December	Quarterly
Extensions	An extension to the abovementioned deadlines may be granted upon request.
Forms and filing method	All tax returns can be found on https://impotsdirects.public.lu/fr/formulaires/collectivites.html and have to be filed electronically.
Penalties	Failure to submit the tax return or late submission will lead to a penalty of 10% of the tax due and fines up to EUR 25,000.

In Luxembourg, three key regulatory authorities are in charge of taxation:

• The direct tax administration (Administration des Contributions Directes, or ACD). The ACD deals with direct taxation of companies and individuals and is responsible for fixing, controlling and collecting the applicable tax, fixing tax advances, issuing tax residence certificates, etc.
• The indirect tax administration (Administration de l’enregistrement, des domaines et de la TVA) dealing with VAT, registration and stamp duties, inheritance and gift taxes.
• The Customs and Excise Administration (Administration des douanes et accises).

The direct tax administration operates a number of tax offices dealing with the taxation of companies, which are responsible for controlling and fixing the applicable tax, fixing tax advances, issuing tax residence certificates, etc. The direct tax administration is in general easy to approach and meetings with the tax inspector in charge can be requested.

As of 1 July 2026, the ACD reorganised its tax offices specialised in companies with a financial purpose: the former Sociétés 6 office was split into three specialised offices: Sociétés 6 (dedicated to SOPARFI), Sociétés 7 (for banks and related entities), and Sociétés 8 (for investment funds). This restructuring aims to improve efficiency, harmonise practices and enhance legal certainty.

In 2015, Luxembourg provided a legislative framework to its tax ruling procedure. Since then, advanced tax rulings and advanced pricing agreements can be filed with the direct tax administration. Each request is then processed by the so-called ruling committee consisting of between 4 and 6 tax civil servants. The ruling committee may contact the taxpayer directly, in case it requests additional information or clarification. The committee provides a final binding answer within a timeframe of generally 2 to 3 months. Rulings are binding for a period of 5 years.

Rulings which have been granted by the ACD before 1 January 2015 are no longer binding after 31 December 2019. Taxpayers who have been affected by this provision may request a new ruling in accordance with the applicable standard procedure. A waiver has been granted to taxpayers who have a financial year diverging from the calendar year as the latter might file a ruling before the end of their 2020 financial year. As rulings may only be requested in relation to one or several specific transactions, a new filing can only be approved provided that the concerned transactions still take effect at the expiry date of the ruling.

However, since the Luxleaks and other scandals (e.g., Panama papers, Openlux, etc), the number of rulings filed has significantly decreased. It appears to be a general downward trend corroborated over the years.

The rules applying to the proceedings against a tax assessment notice are embedded in the Luxembourg Abgabenordnung (the “AO”). The filing period for a complaint is very short and expires 3 months after receiving notice of the relevant tax assessment. A complaint has to be filed first with the relevant Luxembourg tax office.

The Luxembourg tax office does not need to answer to the complaint within any specific deadline. However, as per Luxembourg administrative law, if no formal decision or answer is provided by the Luxembourg tax administration after a period of 6 months, the relevant taxpayer can file a legal complaint in front of the Luxembourg administrative tribunal. Decisions of the Tribunal Administratif can also be appealed to the Cour Administrative. Concerning tax matters, the Cour Administrative is the final instance so that decisions taken cannot be further appealed.

Luxembourg administrative jurisdictions are subject to procedural deadlines, so that a court case is in practice generally judged within a timeframe of 1.5  to 2 years per instance.

With regard to tax matters, the filing of a complaint has no suspensive effect, so that even if a tax is challenged, it must still be paid when declared due. A payment deferral (sursis de paiement) may be granted upon request.

With regard to VAT matters, similar rules apply. Nevertheless, it should be noted that the District Court (Tribunal d’Arrondissement) (being part of the civil jurisdictions) is competent for complaints against decision of the VAT authorities.

Disputes that have arisen since 2018 relating to the interpretation and application of the EU Arbitration Convention and of intra-EU tax treaties fall under the scope of application of the Luxembourg law of 20 December 2019 implementing the EU Directive on tax dispute resolution mechanisms. Luxembourg taxpayers may submit their complaints within three years following the notification of the tax assessment, the audit report or any event triggering a tax dispute to the ACD. The ACD must decide on the admissibility of the complaint within 6 months following its receipt and, where the complaint is accepted, the dispute must be resolved by means of a mutual agreement procedure (“MAP”) within 2 years following the acceptance of the complaint.

The Luxembourg Tax Authorities (“LTA”) released the Circular L.G. – Conv D.I. n°601 dated 11 March 2021 providing for information on the articulation of MAPs with other procedures including judicial or administrative claims, and amicable procedures under different provisions like tax treaties and the EU Arbitration Convention.

Upon a delay of the procedure, Luxembourg taxpayers may have recourse to the Luxembourg administrative procedure mentioned above.

To be noted that the Luxembourg government plans a major AO reform part of which was carried by bill n°8186A, voted in December 2024, while the rest is still subject to discussions.

Corporate taxpayers pay quarterly tax advances (avances) fixed by the ACD on the basis of the most recent tax assessment. Any balance resulting from a tax assessment notice is payable within one month of its notification. VAT and the other self-assessed taxes must be paid by the deadline applicable to the filing of the corresponding return, as set out in the table below.

With regard to disputed amounts, the filing of a complaint has no suspensive effect, so that a tax which is challenged must still be paid when declared due. A payment deferral (sursis de paiement) may be granted upon request.

Taxes	Taxpayer	Relevant tax authority	Deadlines	Frequency
Personal income tax	– Natural persons – Partnerships – Sole proprietorships	Administration des Contributions Directes (ACD)	Before the 31st of December of the following calendar year	Yearly
Corporate income tax	Capital companies	ACD	Before the 31st of December of the following financial year	Yearly
Municipal business tax Proprietorship	– Capital companies – Partnerships and sole proprietorships	ACD	Before the 31st of December, together with the corporate income tax return	Yearly
Net wealth tax	– Capital companies	ACD	Before the 31st of December of the current year.	Yearly
VAT	VAT taxpayers (incl. companies, individuals carrying on a business activity, landlords if they have opted for VAT). If the turnover is:	Administration de l’enregistrement, des domaines et de la TVA (AED)
	< EUR 112,000		Before the 28th of February (with the 31st of October as administrative tolerance);	Yearly
	> EUR 112,000 < EUR 620,000		Before the 15th of January, April, July and October (+ 2 additional months administrative tolerance) with an annual return to be filed before the 30th of April (with the 31st of December as administrative tolerance);	Quarterly and yearly
	> EUR 620,000		Before the 15th of each month (+ 2 additional months administrative tolerance)	Monthly and yearly
	VAT taxpayers performing only VAT exempt activities not entitling to input VAT deduction right that receive services (or to some extent goods) from suppliers established outside Luxembourg.		Before the 28th of February (with the 31st of October as administrative tolerance);	Yearly
Subscription tax	Special Investment Funds Family wealth companies (SPFs)	AED	Before the last day of March, June, September and December	Quarterly
Extensions	An extension to the above-mentioned deadlines may be granted upon request.
Forms and filing method	All tax returns can be found on https://impotsdirects.public.lu/fr/formulaires/collectivites.html and have to be filed electronically.
Penalties	Failure to submit the tax return or late submission will lead to a penalty of 10% of the tax due and fines up to EUR 25,000.

The Luxembourg tax administration is subject to professional secrecy requirements towards third parties which apply to information relating to foreign and national taxpayers.

However, the Luxembourg tax administration may disclose information to other tax administrations and judicial authorities. In that respect, in 2014, Luxembourg has approved the Convention on Mutual Administrative Assistance in Tax Matters.

Luxembourg has also signed an intergovernmental agreement regarding the automatic exchange of information between the Luxembourg and US tax administrations within the FATCA, Model 1.

Luxembourg has transposed the Council Directive (EU) 2016/881 concerning automatic and mandatory exchange of tax information concerning the Country-by-Country reporting (“CbCR”), with effect as of the fiscal year 2016, and the Directive (EU) 2021/2101 of the European Parliament and of the Council of 24 November 2021 amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches (“public CbCR”), with effect as of the financial years beginning on or after 22 June 2024. For companies using a standard calendar year, the first active reporting period begins on January 1, 2025, with the final public report due by December 31, 2026.

Luxembourg is a signatory to the Common Reporting Standard (“CRS”) and has implemented the automatic exchange of information in tax matters as of 1 January 2016. In October 2020, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes found the Luxembourg legislative framework on that matter in full compliance. Furthermore, the law of 16 May 2023 amended the Luxembourg law implementing CRS to comply with the General Data Protection Regulation (EU 2016/679) (“GDPR”).

Luxembourg also transposed Council Directive (EU) 2016/2258 (“DAC 5”), which grants tax authorities access to the beneficial ownership information collected by professionals under the anti-money laundering rules and thereby enables the disclosure of beneficial ownership information to foreign European tax authorities. DAC 6 relating to mandatory disclosure rules for intermediaries and the automatic exchange of information on reportable cross-border arrangements has been transposed into Luxembourg law with effect as of 1 July 2020. Whereas DAC 6 obliges professionals and taxpayers to disclose confidential information, the Luxembourg law implementing DAC 6 exempts lawyers, chartered accountants and auditors from such reporting obligations in conformity with their professional privilege.

Finally, as of 1 March 2019, Luxembourg has introduced its register of beneficial owners (the “RBO”) with a six-month transitional period for Luxembourg entities to identify and register their ultimate beneficial owners (“UBO”) in that said register. The information is kept for a period of 5 years after the liquidation or winding up of the relevant entity. As from 1 September 2019 (at the end of the transitional period), information provided to the RBO was accessible to the public, except for highly private information such as the address and the national identification number of the relevant UBOs. On 22 November 2022, the Court of Justice of the European Union (“CJEU”) decided that such public access to the Luxembourg RBO infringes inter alia the rights to private life and personal data protection provided by the Charter of Fundamental Rights of the European Union. As a consequence, general public access to the RBO has been discontinued. Following the amendment in 2024 of the law of 13 January 2019 establishing the RBO, access is now available to the national authorities, to professionals subject to the Luxembourg anti money laundering (AML) law dated 12 November 2004, as amended, to journalists, and to any person able to demonstrate a legitimate interest in the prevention of money laundering and terrorist financing.

In addition to the RBO, the law of 10 July 2020 introduced a register of fiduciaries and trusts (the “RFT”) with effect as of 10 July 2020. As for the RBO, the personal information on the beneficial owners of any trusts and fiduciaries having a fiduciary agent or a trustee which (i) resides in Luxembourg or (ii) are located outside Luxembourg but established a business relationship with a professional [2] or purchased real estate located in Luxembourg must be registered in the RFT. Despite the mandatory disclosure rules listed above, the Luxembourg courts and the CJEU keep a watchful eye on fishing expeditions and protection of taxpayers’ fundamental rights (see CJEU “Berlioz” decision dated 16 May 2017). In the context of the Panama Papers however, Luxembourg case law from July 2021 waved the professional secrecy of lawyers approached as third parties in the context of a tax audit carried out by the Luxembourg tax administration. This development is closely monitored by Luxembourg practitioners as potentially harmful to fundamental rights of taxpayers.

[2] Professional within the meaning of the Luxembourg law of 12 November 2004 on the fight against money laundering and terrorist financing transposing Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001 amending Council Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering.

According to Article 159 of the Luxembourg income tax law (“LITL”), an entity is treated as a resident of Luxembourg for direct tax purposes if it has

i. its registered office (siège statutaire) in Luxem-bourg, or

ii. its central administration (administration centrale, i.e. the place of effective management) located in Luxembourg.

The Luxembourg tax authorities pay attention to cross-border transactions between related parties, especially on intragroup financing activities.

Since the issuance of the Circular n° 56/1-56bis/1 and the renewal of the LITL, mentioning the basic principles to be followed in conducting a transfer pricing analysis (please refer to question 11 for more details), the Luxembourg tax authorities are keen on reviewing intragroup financing activities and whether they are secured with a transfer pricing study to prove its arm’s length character.

In accordance with article 164ter (3) LITL, the net income of the CFC which has not been distributed to the Luxembourg taxpayer during the same financial year and which arises from artificial arrangements put in place for the main purpose of obtaining a tax advantage has to be included in the taxable income of the Luxembourg taxpayer.

There is currently no legislation concerning the thin capitalisation ratio specifically but, in practice, the tax administration uses a debt-to-equity ratio of 85:15 for the intra-group financing of participations. The LTA may requalify the surplus of interest as a hidden dividend distribution. Such requalification would result in a lack of deductibility for those payments and possible application of a 15% withholding tax (subject to applicable tax treaty or participation exemption if applicable). Back-to-back financing is not subject to the abovementioned ratio.

Luxembourg transfer pricing rules are embedded in the revised Articles 56 and 56bis LITL, which incorporate the arm’s length principle based on Article 9 of the OECD Model Convention. The amended provisions go further and reflect the spirit set out in the BEPS Actions 8–10, such as the concept of comparability analysis and a general anti-abuse rule that allows the disregarding of a transaction that has been made without any valid commercial or business justification.

On 27 December 2016, the Luxembourg tax authorities issued the Circular n° 56/1-56bis/1 which has reshaped the transfer pricing framework for companies carrying out intra-group financing activities in Luxembourg. The Circular provided additional guidance in terms of substance and transfer pricing requirements in line with the OECD Guidelines. In particular, it provided substantial details on how to conduct the comparability and functional analyses in a way consistent with the OECD principles. Furthermore, the Circular requires the performance of a comprehensive risk analysis in order to determine the adequate level of equity capital.

On 28 March 2023, a draft law was introduced, which covers, amongst others, a new procedure for bilateral and multilateral Advance Pricing Agreements (“APAs”), the concept of “Master File” and “Local File” documentation requirements, transfer pricing policies and intragroup transactions. That draft law was subsequently split: bill n° 8186A was voted in December 2024, while bill n° 8186B, which contains the Master File and Local File documentation requirements, remains in draft form. There is therefore still no statutory transfer pricing documentation requirement in Luxembourg, the obligation continuing to rest on the general duty to substantiate the tax return upon request of the tax authorities.

Luxembourg has GAAR embedded in its legislative framework (Art. 6 Steueranpassungsgesetz, “StAnpG”), which applies to any Luxembourg taxpayer (i.e., capital companies, individuals and partnerships). A specific GAAR was also introduced to implement Council Directive (EU) 2015/121 of 27 January 2015 amending the Parent-Subsidiary Directive, introducing a GAAR on the participation exemption regime.

In December 2018, Luxembourg modified its existing GAAR under Art. 6 StAnpG to align it with the GAAR provided for by the ATAD 1. According to the amended rule, a misuse of forms and institutions of law (i.e., an “arrangement”) which has been effected for the main purpose, or one of the main purposes, of achieving a tax advantage and which is not commercially genuine should be ignored. An arrangement is considered as not genuine if it has not been put into place for valid commercial reasons which reflect economic reality.

However, one shall remember that the GAAR is still subject to EU law and its interpretation by the CJEU. In this context the CJEU Cadbury Schweppes case-law and the notion of wholly artificial arrangements should be taken into account when applying the GAAR.

Over the past years, the Luxembourg tax administration has more and more relied on the concept of abuse of law in order to challenge a taxpayer’s tax return. We also observe a clear increase in case law referring to the abuse of law. In that context, the courts have confirmed that the analysis on whether an abuse of law arises is not carried out on a case-by-case basis but can rely on a global assessment of the transaction and the group under review.

A Digital Services Tax (“DST”), as such, does not exist in Luxembourg. Corporate income tax ordinarily applies on such services if carried out by a Luxembourg resident entity or from a permanent establishment located in Luxembourg.

While other European countries have implemented, or have shown intentions to implement, a DST, Luxembourg has consistently favoured a multilateral solution developed at OECD and EU level rather than a unilateral digital levy. The introduction of a domestic DST is not a priority for the Luxembourg legislator.

Consistently with that approach, Luxembourg has implemented the OECD/G20 two-pillar solution through the EU minimum taxation directive (please refer to question 14) and would await a corresponding multilateral or EU instrument before introducing any digital levy into its domestic law.

Since the release of the BEPS Action Plan by the OECD, the European legislator issued several directives to combat tax avoidance and profit shifting within the EU. Most of the EU incentives are directly inspired or make a direct reference to the BEPS Action Plan. The most relevant ones are being the ATAD 1 and Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (“ATAD 2”) providing for five main anti avoidance measures. At a Luxembourg level, national efforts are being made to introduce such measures and comply with certain of the BEPS recommendations. In details, Luxembourg implemented the following changes to align its law with the BEPS Action Plan:

Action 1: implementation of EU VAT directive addressing VAT on business to customer’s digital services.

Actions 2-4: Implementation of ATAD 1, which deals with CFCs and interest limitation rules, which have been implemented into Luxembourg law as of 1 January 2019. Hybrid rules under ATAD 2 aiming to neutralize the effects of hybrid mismatch arrangements have been transposed into Luxembourg national law as of 1 January 2020. In addition, rules providing for the limitation of the deductibility of interest and royalties paid to entities located in noncooperative jurisdictions have been implemented as of 1 March 2021.

Action 5: Luxembourg introduced a BEPS compliant new IP box regime as of the fiscal year starting in 2018.

Action 6: on preventing the granting of treaty benefits in inappropriate circumstances. Action 6 will include minimum standards to combat contractual abuse. Action 7: prevention of the artificial avoidance of permanent establishment status

Actions 8–10: introduction of the new Article 56bis in the LITL. Action 12: as per the transposition into domestic law of the DAC 6.

Action 13: transfer pricing documentation as requested by the new transfer pricing rules; CbCR which is applicable in Luxembourg for financial years starting on or after 1 January 2016.

Action 14: Luxembourg chose to opt for mandatory arbitration under the MLI which will be improved due to the new BEPS-MLI.

Action 15: Luxembourg signed the MLI.

Further to the implementation of the several “Actions”, the Council of the EU adopted Pillar 2. The EU Member States were expected to transpose the directive into their domestic laws by 31 December 2023. Accordingly, Luxembourg implemented Pillar 2 in the law of 22 December 2023 applying the related implementing provisions in respect of the fiscal years beginning from 31 December 2023 for the so-called “Income Inclusion Rule” and the “Qualified Domestic Minimum Top-up Tax” and in respect of the fiscal years beginning from 31 December 2024 for the “Undertaxed Profit Rule”. The law of 22 December 2023 was subsequently amended, inter alia by the law of 20 December 2024. In addition, the separate law of 19 December 2025 implements Council Directive (EU) 2025/872 on the automatic exchange of top-up tax information returns.

As mentioned above, Luxembourg has made significant efforts to comply with the OECD recommendations in its BEPS Action Plan, as long as these become mandatory measures from the EU parliament initiative. However, as a competitive jurisdiction it does not plan to impose measures that would go beyond of the recommendations of the BEPS report. The interesting exception to that is the introduction of the mandatory binding arbitration, which is not required under the MLI instrument. Also, it is worth noting that the Luxembourg law on transfer pricing expressly makes reference to the OECD transfer pricing guidelines, when interpreting the national law.

The Luxembourg tax system follows mainly the OECD Model.

The LITL provides for eight categories of income that are taken into account for the determination of the taxable net income: income from commercial activities, income from independent activities (including directors’ fees), income from agricultural forestry activities, employment income, pension income, investment (dividend and interest) income, rental and royalty income and miscellaneous income (including capital gains).

(a) Business profit capital companies taxation

Luxembourg levies CIT on the annual net worldwide profits of Luxembourg resident companies and on source-based profits of non-resident companies. Profits and charges are accounted for on an accrual basis.

As from the tax year 2025, income exceeding EUR 200,000 is taxed at a rate of 16%. In addition, a 7% solidarity surcharge for the employment fund and a 6.75% municipal business tax (“MBT”) for companies registered in Luxembourg City are levied. For companies located outside of the Luxembourg City a different rate of MBT may apply.

The above amounts to an aggregate tax rate for Luxembourg-City domiciled companies of 23.87%. The rates applicable to lower taxable income were reduced correspondingly as from 1 January 2025:

14% for taxable income up to EUR 175,000, and EUR 24,500 plus 30% of the tax base above EUR 175,000, for taxable income between EUR 175,000 and EUR 200,000.

(b) Employment income and pensions individuals

Individuals tax resident in Luxembourg are taxable on their worldwide income (unless an applicable treaty determines otherwise). The calculation of Luxembourg income taxes depends on the taxable income and the individual’s family status. Employment income is subject to progressive tax rates ranging from 0% to 42%, the top rate applying to taxable income exceeding EUR 234,870 (the threshold is of EUR 469,740 for couples taxed jointly). The resulting tax is increased by a solidarity surcharge for the employment fund of 7%, raised to 9% for higher incomes, so that the maximum effective marginal rate amounts to 45.78%. Pension income is subject to a specific tax regime where 50% of the life annuities is tax exempt. Lump-sum payments in the framework of pension may be paid tax free or are only taxable at 50% of the average tax rate, depending on the kind of the premiums paid.

The law of 19 December 2025 increased the annual deduction ceiling for contributions to eligible personal pension savings schemes (Articles 111bis and 111ter LITL) from EUR 3,200 to EUR 4,500 as from the 2026 tax year, and introduced a new allowance for taxpayers who fulfil the conditions for a personal pension but do not draw it and continue working, of up to EUR 9,000 per year within a limit of EUR 750 per month. In addition, draft law n° 8676 of 6 January 2026 would introduce a single personal income tax class.

(c) VAT

Supply of goods and services are subject to VAT in Luxembourg. Currently, four rates are applicable: a 17% standard rate; an intermediary rate of 14%; a reduced rate of 8%; and a super-reduced rate of 3%. Annexes A, B and C of the law of 12 February 1979 as amended (the “VAT Law”) provide for a detailed list of services and goods that are subject to the reduced rates. Such Annexes are to be interpreted strictly. Taxable persons whose annual turnover excluding VAT does not exceed EUR 50,000 benefit from the small business VAT exemption but still need to register for VAT. There are also customs and excise duties applicable for certain goods.

(d) Savings income and royalties

Under Luxembourg general tax laws currently in force and subject to the law of 23 December 2005, as amended (the “Relibi Law”) mentioned below, there is no withholding tax on payments of interest made to Luxembourg residents.

Under the Relibi Law, payments of interest or similar income made or ascribed by a paying agent established in Luxembourg to an individual beneficial owner who is a resident of Luxembourg will be subject to a withholding tax of 20%. Such withholding tax will be in full discharge of income tax if the beneficial owner is an individual acting in the course of the management of his/her private wealth.

The scope of the withholding tax was clarified by the budget law for 2023, which confirmed that the Relibi Law applies only to a paying agent making payments in the course of its normal economic activity and, as regards debt instruments, only to instruments that are listed and admitted to trading on a regulated market. Responsibility for the withholding of the tax is assumed by the Luxembourg paying agent.

An individual beneficial owner of interest or similar income who is a resident of Luxembourg and acts in the course of the management of his private wealth may opt for a final withholding tax of 20% when he/she receives or is deemed to receive such interest or similar income from a paying agent established in another EU Member State (other than Luxembourg) or in a State of the European Economic Area (which is not an EU Member State).

Royalties are taxed as income following the rules as mentioned above.

(e) Income from land

Rental income is subject to taxation at normal tax rates mentioned above (for companies or individuals).

(f) Capital gains

For Luxembourg resident companies, in principle capital gains arising from the sale of assets are treated as ordinary income and taxed as such, unless participation exemption applies.

Capital gains exemption is available if, at the time the capital gains are realised as follows:

• the Luxembourg company has held a direct participation representing at least 10% of the nominal paid-up share capital of its subsidiary (or if below 10%, a direct participation having an acquisition price of at least EUR 6 million);
• it has held such qualifying participation for an uninterrupted period of at least 12 months; and
• the subsidiary entity is (i) a Luxembourg resident entity fully subject to Luxembourg income taxes, or (ii) a non-resident capital company liable for an income tax in its country of residence comparable to the Luxembourg CIT, or (iii) an entity resident in a Member State of the European Union (as defined in Article 2 of the EU Parent Subsidiary Directive 2011/96, as amended (the “PSD”).

It is important to note that the specific GAAR provided for by the PSD applies to dividends and not to capital gains deriving from qualifying subsidiaries benefitting from the Luxembourg participation exemption, regardless of their location. The general anti-abuse rule under Article 6 StAnpG nevertheless remains applicable.

With regard to individuals, non-speculative gains on the sale of shares (if no important participation of more than 10%), are not taxable.

(g) Stamps and/or capital duties

Under Luxembourg law, certain acts such as official acts, acts of estate agents and transfer of ownership of certain goods are required to be registered with the Luxembourg AED. Registration duties are fixed or proportional, depending on the nature of the acts and transfers that are subject to them.

Luxembourg companies are taxed on their annual net profits as determined under Luxembourg general accounting principles (“Lux GAAP”) under which both upward and downward adjustments are allowed. As a general rule, the commercial accounts are used as a basis for the computation of the Luxembourg tax, unless a specific tax rule specifies otherwise (principe de l’accrochement fiscal au bilan commercial).

The commercial result is then adjusted for tax purposes, in particular in respect of:

• tax-exempt profits (e.g. as per the participation exemption regime applicable for dividends and capital gains);
• add-back expenses (e.g. interest expenses on assets generating tax-exempt income);
• adjustment to the tax results from the transactions that were not at arm’s length (e.g. the interest rate set was not at market conditions, or interest payments were reclassified as hidden dividend distribution and hence not tax deductible anymore); and
• discrepancies between the application of different valuation rules in accounting and in tax (e.g. amortisation, rollover relief).

Retained and distributed profits are taxed in the same manner in Luxembourg.

The resulting taxable income is subject to CIT at 16% (14% for taxable income up to EUR 175,000, with an intermediary bracket between EUR 175,000 and EUR 200,000), increased by the 7% solidarity surcharge for the employment fund and the MBT, which amounts to 6.75% for companies registered in Luxembourg City. For a company domiciled in Luxembourg City, this results in an aggregate nominal tax burden of 23.87% as from the 2025 tax year. A different MBT rate may apply outside Luxembourg City.

The qualification of Luxembourg companies for Luxembourg CIT follows a list/catalogue approach. The LITL provides provisions defining all legal and corporate entities existing under Luxembourg laws as either tax opaque (Article 159 LITL) or tax transparent (Article 175 LITL).

The Luxembourg SA (Société Anonyme) and the Luxembourg S.à r.l (Société à responsabilité limitée) are the most commonly used company forms in Luxembourg. These company forms are opaque and fully taxable business entities.

With respect to partnerships, the Luxembourg limited partnership (société en commandite simple (“SCS”)) as well as the Luxembourg limited partnership without legal personality (société en commandite spéciale (“SCSp”)) which was introduced into Luxembourg law in 2013, are frequently used. The partnerships as mentioned before are tax transparent not being subject to corporate tax in Luxembourg. Taxation occurs at the level of the partners.

The SCSp is mainly used for the structuring of funds and real estate transactions, providing more flexible solutions compared to other corporate forms.

According to article 159 of the LITL, companies are considered as resident in Luxembourg for tax purposes if their registered seat or the central place of administration is located in the Grand Duchy of Luxembourg.

The central administration of a company may be defined as the seat of its administration, i.e. the place where: central accounting is kept, archives are kept, shareholders’ meetings are held, board of directors’ meetings are held, or in summary, where the direction of the company’s affairs is concentrated.

Companies which are tax resident in Luxembourg are subject to tax on their worldwide income.

In 2014, Luxembourg opened the so-called Freeport, now called the Luxembourg High Security Hub. It offers safe and secure storage for works of art, precious metals, wines, antiques, jewels, documents and archives (physical and digital), collection cars and other valuables.

For the goods as stored in the Freeport, a special VAT regime applies. In this respect and in line with the applicable EU regulations, VAT and custom duties are suspended on goods introduced into the free zone from third countries or originating in the EU. The suspensive regime is applicable as long as the goods remain stored in the Freeport.

Another interesting tax regime worth mentioning – next to the one applying to Luxembourg investment funds – is the one applying to securitisation companies. Under Article 46 (14) of the LITL, payments or commitments to pay by a securitisation company to its investors (including shareholders) qualify as a tax deductible expense, so that the taxable basis of such company can be nil. That being said, careful attention should be paid to the impact of the ATAD 1 and 2 rules on securitisation structures.

As from 1 January 2026, a reformed carried interest regime also applies: contractual carried interest is taxed as extraordinary income at one quarter of the applicable progressive rate, resulting in a maximum effective burden of approximately 11.45% including the solidarity surcharge, while participation-linked carried interest falls within the capital gains regime.

Luxembourg provides a wide range of investment vehicles. Luxembourg investment funds such as the Specialised Investment Fund (“SIF”), the Reserved Alternative Investment Fund (“RAIF”) or the investment company into risk capital (“SICAR”) have favourable tax regimes.

From a Luxembourg point of view, a SIF is a taxpayer but not subject to tax as its income is fully exempt from Luxembourg CIT.

Depending on their performed activity, RAIFs are subject to either the same income tax exemption regime as SIFs or the same tax regime as SICARs.

The SIF as well the RAIF are unrestricted with respect to eligible assets and can be used for all investment purposes.

The tax regime of SICARs depends on the chosen legal form. SICARs established in form of a SCS or SCSp are tax transparent and thus not subject to tax.

In principle, SICARs established under the corporate form benefit from the Luxembourg double tax treaty network. However, UCITS, SIFs and RAIF may or may not benefit from the provisions of a double tax treaty. Such benefit is to be checked on a case-by-case basis.

As of 1 January 2022, the reverse hybrid mismatch rules provided for by ATAD 2 are applicable in Luxembourg. As a result, entities which are transparent for Luxembourg tax purposes may be subject to corporate income tax under certain conditions.

Luxembourg reintroduced in 2018 in its LITL the new IP box regime that is now in line with the BEPS recommendations.

In addition, the Luxembourg tax authorities published a circular on 28 June 2019, L.I.R. n° 50ter/1, clarifying the patent box.

Under the new Article 50ter LITL, 80% of the income derived from the commercialisation of certain intellectual property (“IP”) rights is exempt, as well as fully exempt from NWT. The new rules are applicable as from the fiscal year 2018.

Qualifying assets include the following IP rights:

• patents (broadly defined) and functionally equivalent rights that are legally protected by utility models, extensions of patent protection for certain drugs and phyto-pharmaceutical products, plant breeder’s rights, and orphan drug designations; and
• copyrighted software.

In line with the BEPS – Action 5 recommendations, marketing-related IPs can no longer benefit from the IP box regime.

Qualifying income includes the following:

• income derived from the use of, or a concession to use, qualifying IP rights (i.e. royalty income);
• IP income embedded in the sales price of products or services directly related to the eligible IP asset (the principles of Article 56bis LITL must be used to separate income unrelated to the IP, e.g. marketing and manufacturing returns);
• capital gains derived from the sale of the qualifying IP rights; and
• indemnities based on an arbitration ruling or a court decision directly linked to a breach of a qualifying IP right.

The regime applies on a net income basis, meaning that expenses relating to the qualifying IP assets need to be deducted from the gross qualifying income. The proportion of qualifying net income entitled to the benefits will be determined based on the ratio of qualifying expenditures and overall expenditures (nexus ratio). The previously qualifying IP assets can continue to benefit from the old regime during the grandfathering period, which ended on 30 June 2021.

Because the 80% exemption is based on the combined CIT and MBT burden, the reduction of the CIT rate from 17% to 16%, effective 1 January 2025, lowers the effective tax rate on qualifying net IP income. In Luxembourg City, this results in an overall effective rate of about 4.774% (down from 4.988%), in addition to the full NWT exemption, while a different MBT rate may apply outside Luxembourg City.

1. Fiscal unity for direct tax purposes

Luxembourg allows a group of companies to apply a fiscal unity (or tax consolidation). Under such regime, the respective taxable profits of each company in the consolidated group are pooled or offset to be taxed on the aggregate amount, which means that the group is effectively treated as a single taxpayer.

Generally, the conditions to qualify for a fiscal unity are as follows:

• each company that is part of the tax unity is a Luxembourg resident fully taxable company (the top entity may be a Luxembourg permanent establishment of a fully taxable non-resident company) (the “Eligible Company”);
• at least 95% of each subsidiary’s capital is directly or indirectly held by an Eligible Company;
• each company’s fiscal year starts and ends on the same date; and
• the fiscal unity is applied for at least five financial years.

The taxable income/loss of the fiscal unity is calculated as the sum of the taxable income/loss of each constitutive entity. The vertical fiscal unity regime has been extended since 1 January 2016 in accordance with the CJEU case law in particular to allow horizontal integrations. Eligible Companies (at least two Luxembourg companies) that are held by a common parent established in any European Economic Area country and subject to tax comparable to Luxembourg’s CIT in its country of residence are now also permitted to form a fiscal unity. Companies consolidated for CIT are also automatically consolidated for MBT. However, there is no tax consolidation for NWT purposes.

Securitisation entities and venture capital companies are excluded from the possibility to form a fiscal unity in order to prevent tax evasion schemes.

2. VAT Group

Since mid-2018, Luxembourg introduced a revised VAT group regime (in line with the CJEU Skandia case (C-7/13), and later on, the Danske Bank case (C-812/19)). Such VAT group regime treats all of the transactions between its members as “out of the scope” of the VAT. One of the major differences between the new and the former regime is that the VAT group regime is restricted to persons established in Luxembourg and Luxembourg branches of foreign companies, whereas the former regime allowed for grouping with other Member States of the EU.

Companies wishing to benefit from the VAT group regime must generally meet three requirements proving their bound: there must be (i) an economic (ii) financial and (iii) organisational link with the other VAT group members.

Dividends paid to residents as well as non-residents are in principle subject to a 15% withholding tax (“WHT”) in Luxembourg. It is possible, however, to benefit either from a reduced rate or an exemption under a double tax treaty or from the domestic participation exemption regime.

Domestic participation exemption is granted if, at the time of the dividend distribution:

• the parent company is a Luxembourg fully taxable company, or a resident company of a Member State of the EU as defined in Article 2 of the PSD, or a Swiss resident capital company that is subject to an income tax in Switzerland without being exempt from tax, or a foreign joint-stock company which is subject in its country of residence to an income tax regime corresponding to the Luxembourg CIT;
• said company holds or commits to hold a participation of at least 10% (or with an acquisition price of at least EUR 1.2 million) in the nominal share capital of the distributing company; and
• such qualifying participation has been held for an uninterrupted period of at least 12 months.

If the shareholder is an EU company within the scope of the PSD, the exemption applies subject to the additional specific GAAR below:

• the EU parent company is not used for the main purpose or as one of the main purposes of obtaining a tax advantage that defeats the object of the PSD.

Liquidation proceeds are not subject to dividend WHT. If properly structured a partial liquidation may as well not be subject to the WHT. In addition, dividend payments made by certain type of vehicles, e.g. SPFs, SICAV, SICAR and securitisation vehicles are not subject to WHT.

There has been no WHT on royalties in Luxembourg since 1 January 2004. Furthermore, there is no WHT on arm’s length interest payments in Luxembourg. Interest paid under certain hybrid instruments or not at arm’s length may be subject to a 15% WHT if reclassified as dividend payments by the tax authorities.

According to the latest Eurostat reports, Luxembourg collects one of the lowest shares of environmental tax revenue in the European Union. Businesses are nevertheless subject to environmental levies, in particular the CO2 tax on energy products introduced as from 1 January 2021 for the sectors not covered by the EU emissions trading system, the rate of which has been increased in successive steps since then, as well as the excise duties on energy products and electricity. In addition, Luxembourg offers investment tax credits that incentivise ecological and digital investments: The Digital and Ecological Transformation tax credit (bonification d’impôt pour investissement dans un projet de transition écologique et énergétique / transformation digitale) and the Tax Credit for Overall Investment (bonification d’impôt pour investissement global) are components of the single bonification d’impôt pour investissement framework, governed by article 152bis of the Luxembourg Income Tax Law (L.I.R.) of 4 December 1967.

More specifically, the law of 19 December 2023 modernised this framework by restructuring article 152bis L.I.R. into the following components:

The DET tax credit (18% rate, or 6% for tangible depreciable assets) for investments and operating expenses connected with digital transformation or ecological/energetic transition is set out in article 152bis, §§1–6 L.I.R. This replaced the former bonification d’impôt pour investissement complémentaire  with effect from the 2024 tax year. Eligibility to the DET requires a certificate from the Minister of Economy.

The TCOI (bonification d’impôt pour investissement global) at a rate of 12% on qualifying new tangible depreciable assets is set out in article 152bis, §7 L.I.R.

Both credits are claimed via a single application process (form 800, filed as an appendix to the income tax return), and the Luxembourg government’s official portal (Guichet.lu) presents them together under the same heading of “Bonification d’impôt pour investissement”.

Dividend income received by a Luxembourg resident company is included in its taxable basis and fully taxable, unless a domestic or treaty exemption applies.

Under the domestic participation exemption, dividend income (and liquidation proceeds) is exempt if, at the time the income is put at the disposal of the taxpayer:

• the subsidiary entity is (i) a Luxembourg resident entity fully subject to Luxembourg income taxes, (ii) an entity resident in a Member State of the European Union (as defined in Article 2 of the PSD), or (iii) a non-resident capital company liable to an income tax in its country of residence comparable to the Luxembourg CIT;
• the Luxembourg company holds a direct participation representing at least 10% of the nominal paid-up share capital of its subsidiary (or if below 10%, a direct participation having an acquisition price of at least EUR 1.2 million); and
• it has held (or commits itself to hold) such qualifying participation for an uninterrupted period of at least 12 months.

If the dividends are distributed by an EU subsidiary which is listed in Article 2 of the PSD, the exemption applies subject to the two additional conditions below:

• the EU subsidiary is not used for the main purpose or as one of the main purposes of obtaining a tax advantage that defeats the object of the PSD (GAAR); and
• the dividend/profit distribution from the EU subsidiary have not been deducted from its taxable base (anti-hybrid rule).

Luxembourg offers the following advantages for foreign investors:

• a global network of double tax treaties;
• a stable political and economic environment;
• an approachable public service;
• a large panel of investment vehicles offering tax benefits; and
• the access to the EU single market.

In the past years, Luxembourg has secured a leading position on the international financial scene. With a record of EUR 8.5 trillion net assets managed by Luxembourg funds [3], Luxembourg is the largest investment fund centre in Europe and the second largest worldwide after the United States. Generally speaking, the Grand Duchy of Luxembourg is an attractive investment hub for foreign direct investments which offers stability and economic opportunities. Luxembourg also has a clear legal framework for Family office activities.

[3] Source: Association of the Luxembourg Fund Industry (ALFI)