Companies in Luxembourg must pay corporate tax on their profits, but how much they need to pay depends on the type of company they operate and how much money they make.
Foreigners in Luxembourg are subject to corporate tax on any business income not classified as personal income tax.
This includes income from limited companies, limited liability companies and registered partnerships.
Companies based in Luxembourg are subject to corporate tax on income anywhere in the world, while companies located outside Luxembourg are subject to corporate tax only on income generated in the country.
If you are a freelancer, self-employed or hold shares in an unincorporated partnership, you will usually be subject to income tax instead of corporate tax.
Corporate tax for self-employed persons
Freelancers and self-employed people rarely need to pay corporate tax because their profits will be classified as personal income and taxed.
Self-employed freelancers or self-employed individuals must file their personal tax returns once a year. They must then pay any taxes in their personal capacity to the Luxembourg Tax Office (Administration des duty directes or ACD).
Luxembourg's income tax rates are divided into 23 separate categories. These range from 0% to 42%, with the highest level of retention for income exceeding €200,000.
Although self-employed persons do not pay corporate income tax in Luxembourg, they are liable to pay public business tax as well as property taxes on any premises they own.
Partnership tax
Like the self-employed, partnerships are usually not subject to corporate tax.
Luxembourg Kirchberg business district
This applies to standard partnerships (société em nom collectif – SENC) and limited partnerships (société em commandite simple – SECS), where profits are taxed as the personal income of the partners involved.
If the partnership is a company limited by shares, corporate income tax will apply to shareholder profits.
The main business taxes paid by Luxembourg partnerships are public business tax, value-added tax, property tax, net wealth tax (if applicable) and tax registration fees.
Corporate tax on limited company
An LLC structure, which is subject to corporate tax if the business has been incorporated and exists as a separate legal entity.
Owners of limited companies pay personal income tax on their salaries (and bonuses). Any additional profits must be declared in Luxembourg for corporate tax.
Limited companies in Luxembourg are also subject to public business tax, net wealth tax, value-added tax, property tax and tax registration fees.
Corporate tax rate in Luxembourg
Businesses with an annual income of more than €200,000 in Luxembourg are subject to corporate tax at a rate of 17%.
Companies must also pay an additional solidarity tax. This is charged at 7%. Municipal sales tax is also payable, which varies depending on the location of the business in Luxembourg.
According to PwC, the effective corporate tax rate for high-income enterprises in 2021 is 24.94%.
Office building in Luxembourg
Companies with annual incomes of less than €175,000 pay a lower corporate tax rate of 15% and a total tax rate of 22.8%.
People with incomes between €175,001 and €200,000 must pay €26,250 plus 31% of profits above €175,000.
Companies typically pay corporate tax in advance on a quarterly basis, with installments in March, June, September, and December.
Since these payments were made in advance, companies that were found to have overpaid asked for a refund or deduction from future bills.
Corporate tax relief and credits in Luxembourg
After deducting any permitted business expenses, corporate tax shall be paid on net profits.
In addition to standard expenses such as salaries, equipment, and office expenses, you can deduct the expenses and tax losses of any gifts or donations from previous years.
Corporate tax credits in Luxembourg
Businesses can receive the following tax credits:
Venture capital
Employment of unemployed persons
Investment in continuing professional education
R&D incentives
Investment tax credit
Foreign withholding tax
Companies in Luxembourg are exempt from taxation
Businesses in Luxembourg can apply for tax exemption if they agree to contribute to the structural development of the country's or region's economy.
If approved, the company can receive a 25% profit exemption for the next 10 years.
Luxembourg VAT
Value-added tax (VAT) is a tax levied on transactions related to economic activities. Vat in Luxembourg is usually expressed in its French name, Taxe sur la Valeur Ajoutée (TVA). This is the EU tax payable by businesses. However, businesses pass it on to customers in the form of price increases.
Businesses pay VAT in Luxembourg based on their total turnover.
Businesses and self-employed persons with an annual turnover of more than €35,000 must register for a TVA in Luxembourg.
People with a turnover of less than €35,000 can also choose to register for VAT if they wish. After the business is registered, they receive a VAT number in Luxembourg that can be used for trade purposes.
Luxembourg has four VAT rates:
Normal rate 17%
Intermediate tax rate of 14% for alcohol, fuel and fuel
8% reduction in heating, lighting, clothing, hairdressing, bicycle and cleaning rates related to private homes
Food, soft drinks, children's clothing, books, medical products, water and rental costs over 3% reduction
VAT in Luxembourg is paid monthly, quarterly or annually, depending on turnover.
If the annual turnover is less than €112,000, a return must be submitted annually. The deadline for filing VAT returns in Luxembourg is 1 March each year. Monthly and quarterly returns need to be submitted by the 15th of each month.
Cross-border VAT in Luxembourg
If you do business in Luxembourg and sell goods or services to consumers in another EU country, you will need to register for VAT in that country and charge the applicable VAT rate, unless the total amount of your sales to that country is less than a certain amount.
If you sell goods or services to other businesses in the EU, you are not charged VAT if they have a valid VAT number. If they do not have a VAT number, you can charge the Luxembourg VAT rate.
VAT is not charged to any customer outside the EU, but any VAT you pay for the associated charges can be considered a deduction.
For more information, see the European Commission's Cross-Border VAT Rules.
Corporate tax year in Luxembourg
Luxembourg's tax year is from 1 January to 31 December, and the tax return should expire on 31 May of the following year.
Companies must submit corporate tax returns for assessment by the Luxembourg tax authorities before this date.
How to file a corporate tax return in Luxembourg
Companies in Luxembourg can file tax returns with their local tax office in paper form or online using the government portal.
The following supporting documents are required for tax returns:
balance sheet
income statement
Fixed assets and depreciation tables
Financial statements for overhead costs
Other types of sales tax in Luxembourg
In addition to corporate taxes, businesses may also have to pay some other taxes.
On a sunny day, the skyline of Luxembourg City
Public sales tax
This is the local municipal tax that should be paid to help municipalities fund their costs.
This tax is payable to all enterprises in Luxembourg subject to corporate income tax, as well as to self-employed persons and partnerships that receive operating profits.
The self-employed and partnership receives a stipend of €40,000. In the event that they are subject to corporate income tax, this will be reduced to €17,500.
Luxembourg's public sales tax rate is 8.25% for Esch-sur-Alzette, 9% for Troisvierges and 6.75% for Luxembourg City.
This means that the combined tax rate for corporate and public business taxes of limited companies is 29.25% in Esch-sur-Alzette, 30% in Troisvierges and 27.75% in Luxembourg City.
Net wealth tax
If one of the shareholders is a limited company, the tax applies to both the limited company and the limited liability company.
Taxes on the net assets of the company. The tax rate for assets not exceeding €500 million is 0.5%, and the tax rate for assets exceeding €500 million is 0.05%.
property tax
This is a tax on business property. Tax rates are set by municipalities at the regional level and are based on the value and nature of the property.
Tax registration fees
This is a lump sum made by LLCs and partnerships when they are registered for tax purposes.
The amount may vary, but is usually around EUR 75.
Corporate tax fines in Luxembourg
Companies that late or fail to pay their tax returns will face a penalty of 10% of the tax payable and a fine of up to €25,000. Deliberately filing an incorrect or incomplete tax return can incur an administrative penalty of 5% to 25% of incorrect taxes. Missing or delaying the payment of taxes may result in a monthly penalty of 0.6% for the difference between taxes payable and advances.
If the tax authority grants an extension of the payment period, the penalty for late payment begins 5 months after the initial payment period, as follows:
Payments 5 months to 1 year overdue, 0.1% per month
0.2% per month for payments 1 to 3 years overdue
0.6% per month for payments more than three years overdue
For repeated violations, companies face a fine of 10% of the tax bill (up to a maximum of €25,000). In the event of tax fraud, additional penalties and sanctions may apply.
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