Corporate taxation

The corporate income tax rate is

2013 29.22%
2014 29.22%
2015 29.22%
2016 29.22%
2017 27.08%
2018 26.01%
2019 24.94%
2020 24.94%
2021 24.94%

The rate applies to companies whose taxable income exceeds EUR 30,000. For companies with a taxable income between EUR 25,000 and EUR 30,000, the corporate income tax rate is EUR 3,750 plus 39% of the income exceeding EUR 25,000. A 15% rate applies if taxable income does not exceed EUR 25,000. The corporate income tax rate is increased by 7% for contribution to the employment fund. Municipal business tax also applies and varies by location (e.g. 6.75% for Luxembourg-City).

Special corporate tax incentives

Luxembourg has offered special tax deals to foreign MNE’s resulting in illegal State Aid. The Lux Leaks whistle-blowers exposed several tax deals negotiated by Luxembourg tax authorities.
Luxembourg also offers a IP regime. The old scheme applies to the net income derived from the use of qualifying intellectual property acquired or developed after December 2007. 80% of income is exempted, giving an effective tax rate of 5.76%. IP regimes claimed before July 2016 can still continue to benefit from the preferential rate for the next 5 years. It is expected that Luxembourg creates a new IP regime following the OECD criteria.
Luxembourg is the leading banking center in the Euro zone, with 143 banks managing assets of around 800 billion dollars. Luxembourg favours “administrative services”. The corporate income tax rate of 19% applies to companies whose taxable income exceeds EUR 30,000. However private asset management companies (a.k.a. SPF or Société de Gestion de Patrimoine Familial) pays 0% in taxes. Luxembourg also offers tax incentives, zero percent withholding taxes. Ireland is the route for Japanese and American companies to Luxembourg. In Luxembourg, disclosure of professional secrecy may be punished with imprisonment. Many international corporations choose Luxembourg as location for their headquarters and logistics centers, due to low taxes and location.

Transfer pricing

The statutory rule on transfer pricing is found in Article 56 of the Luxembourg Income Tax Law. This provides that where a transfer of profit is rendered possible by the fact that a Luxembourg taxpayer has a special economic relationship with a non-resident, then the tax authorities may estimate the financial result. It is to be assumed that this provision would be applied only in a situation where the transfer of profit was outside Luxembourg. For example, this might be the case if a Luxembourg company paid significantly more than the market rate for a service it received. Explicit references to the TPG can be found in the parliamentary file deposited in the legislative process. Article 56 LITL, entitled “Arm’s length principle”, states that profits of enterprises that are linked by conditions that differ from those between independent enterprises shall be determined in accordance with the conditions that prevail between independent enterprises and taxed accordingly. It thus explicitly confirms the OECD benchmark.
The legal provision has been introduced into LITL by the “loi du 19 décembre 2014 relative à la mise en oeuvre du paquet d’avenir » Article 56bis LITL has incorporated into Luxembourg law the relevant criteria of the revised TPG (Action 8-10 of the BEPS Action Plan) which the taxpayer is obliged to comply with. This legal provision has been introduced by the budget law for the year 2017. Art 3 of the budget law 2017 and the related commentaries (of the draft budget law) cover the latest amendments in TP regulation in LU.


Transfer Pricing Case Law

Case NameDescriptionDateCountriesKeywords

Cases involving Luxembourg

Case NameDescriptionDateCourtKeywords