Overview of Tax Compliance Services in Luxembourg
Luxembourg is a landlocked country situated in Western Europe, which is bordered by Belgium, France and Germany. The official languages of Luxembourg are Luxembourgish, German and French; Luxembourg levies tax on its corporate residents on their income worldwide and non-residents only on the income sourced from Luxembourg.
The income of a Luxembourg-based branch of a non-resident company is, in general, taxed at normal Corporate Income Tax (CIT) rates. The municipal business tax generally only applies if the branch is carrying on commercial activity within Luxembourg.
Our accountants and tax consultants are familiar with these challenges and offer a full range of tax services to our clients. Our services go beyond the preparation and filing of tax forms for corporate and private tax. Our integrated approach provides personalised answers to all the questions of our clients.
Types 0f Taxes in Luxembourg
The different types of taxes in Luxembourg are discussed below
Corporate Income Tax (CIT)
Businesses having a taxable income lower than 175,000 euros (EUR) attract CIT @ 15%. If the taxable income of the business is between 175,000 and EUR 200,001, the CIT is calculated in the following manner.
EUR 26,250 + 31% of the tax base above EUR 175,000. The CIT rate is 17% for companies with taxable income exceeding EUR 200,001, leading to an overall tax rate of 24.94% in Luxembourg City (taking into account the solidarity surtax of 7% on the CIT rate and including the 6.75% municipal business tax rate applicable).
The CIT is not applicable to tax-transparent entities (e.g. general or limited partnerships or European Economic Interest Groupings) unless they attract the reverse-hybrid rules.
Value-added tax (VAT)
Supplies of goods and services occurring in Luxembourg attractVAT @ 17% (the lowest standard VAT rate in the EU ) or, on certain transactions, @ 14% (e.g., advertising pamphlets, management, certain wines and safekeeping of securities), 8% ( supply of electricity or gas ), or 3% (e.g. food [except most of the alcohol beverages]; books [including e-books since the release of Circular n°793 by the Luxembourg VAT authorities of 17 .05.2019 ]; pharmaceutical products, shoes, accessories, radio and television broadcasting services [except adult entertainment]; and clothes designed for children aged below 14. As of 01.01.23 and until 31.12. 23, standard rate, intermediary rate, and reduced rate shall be decreasing by 1% to 16%, 13%, and 7%, respectively.
Customs Duties/Import Tariffs
As per the European Regulation, goods which enter within the territory of the EU may attract import tariffs/customs duties. Applicable rates are on the basis of the product's nature and quantity.
Along with VAT, some products attract specific excise duties. In Luxembourg, these products are mineral oils, electricity, manufactured alcohol and tobacco
Excise duties aren’t on the basis of the product's sale price rather on the quantity. Excise duty is levied at the time and in the European Union member state of release for consumption. Release for consumption takes place in any of the following circumstances :
- The departure of the excise goods from a duty suspension arrangement
- The holding of excise goods outside a duty suspension arrangement wherein excise duty hasn’t been levied due to the provisions of Community law and national laws
- The production of excise goods outside a duty suspension arrangement
- The importation of excise goods, inclusive of irregular importation, unless the excise goods are placed, immediately after importation, under a duty suspension arrangement
Net Wealth Tax (NWT)
Both Luxembourg resident companies and the branches of non-resident companies in this destination attract the NWT on their net wealth on the basis of the prescribed valuation methods. The below-mentioned scale of rates shall be applicable for NWT:
- On a taxable base of up to EUR 500 million: 0.5%.
- On the taxable base that exceeds EUR 500 million: NWT of EUR 2.5 million, + 05% on the component of the NWT base above EUR 500 million. No cap has been set.
Generally, assets are to be calculated at market value (except for real estate, which attracts a special regime). Shareholdings that qualify for the participation exemption (see Dividend income in the Income determination section) in general are exempt from NWT.
A minimum NWT charge is applicable to all corporate entities having their central administration or statutory seat in this destination.
Entities having aggregated fixed financial assets, transferable securities, inter-company receivables, and cash in excess of 90% of their total gross assets & EUR 350,000 shall be liable for a minimum NWT charge of EUR 4,815.
Rest of the corporations having central administration a or statutory seat in Luxembourg (inclusive of the Société d'Epargne-Pension à Capital Variable [SEPCAVs], securitisation vehicles, Société d'Investissement en Capital à Risque [SICARs], and Association d’Epargne-Pension [ASSEPs]) will attract a minimum NWT charge varyfrom EUR 535 to EUR 32,100, depending on company's total gross assets
General Registration Taxes
A registration duty of EUR 75, which is fixed, is charged on certain transactions that involve Luxembourg legal entities (i.e. incorporation, the amendment to the AOA, and transfer of seat to Luxembourg).
Commune (Municipalities) Real Estate Tax
Communes (municipalities) charge an annual real estate tax based on the unitary value of the real estate, representing its estimated value in 1941. The basic rate may vary from 0.7% to 1% of the unitary value, as per the property's category and is multiplied by a coefficient, which differs with communes and various types of properties. For commercial property, the coefficient in Luxembourg City is 750%, which shall be applied to 1% of the unitary value. The real estate tax is deductible for corporate income tax purposes.
Payroll taxes are withheld by the employer. The highest payroll tax withholding is 42%. A solidarity tax highest @ 9% of tax should also be charged.
Tax Administration in Luxembourg
The tax administration in Luxembourg can be better understood by the following aspects.
The taxable period for Luxembourg's fully taxable resident entities is as per the company’s financial year (i.e. accounting year)
In general, companies use the calendar year for the purpose of accounting but may apply a different accounting year. The taxable period would, in such cases, be as per this other accounting year. The tax year is the one in which the accounting year ends.
The tax return should be filed by the companies by 31 March of every year according to the calendar year during which the income was earned by the assessee. As of FY 2017, tax returns for the companies attracting CIT must be mandatorily filed electronically. The Budget Law 2023 provides an extension of the deadlines for filing certain direct tax returns. Corporate Income Taxes and municipal business tax returns of a given year must be now filed by December 31 of the following year. For the NWT, the return of a given year must be filed latest on 31 December of that year since the return is on the basis of the balance sheet as of 1 January of the tax year.
Tax advances must be paid quarterly. Such payments are fixed by the tax administration based on the tax assessed for the preceding year or based on the estimate for the first year.
The tax authorities of Luxembourg typically extended the filing deadline to 31 December without the imposition of penalties for late filing. The Budget Law 2023 simply provides the practice with a statutory footing which will clearly offer more legal certainty to the assessee.
The new filing deadlines shall be applicable to CIT and municipal business tax returns pertaining to 2022 and to Net Withholding Tax returns for 2023.
Payment of Tax
Tax advances must be paid quarterly. Such payments are fixed by the tax administration based on the tax assessed for the preceding year or based on the estimate for the 1st year. This estimate is given by the company after the request of the Luxembourg tax authorities. The final payment of CIT should be made by the month's end that follows the month of the company's reception of its tax assessment.
General Anti-abuse Rule (GAAR)
The Law implementing ATAD 1 into Luxembourg's domestic tax law and applicable as of tax yrscommencing on or after 1 January 2019 contains a provision affecting GAAR. Indeed, under the new Law, Luxembourg should be adapting and modernizing its existing GAAR. The criteria for 'Abuse of law' and general practice have been developed progressively quite recently by judges and authors.
Under the Law text, there shall be an abuse of law if the legal route, used for the primary purpose or one of the main purposes of reducing or circumventing tax being in contravention of the object or purpose of the law, isn’tgenuine having regard to all relevant facts and circumstances.
The legal route, which may be comprising more than one step or part, would be considered non-genuine to the extent that it wasn’tused for valid commercial reasons reflecting economic reality.
The new text, while adapted to showcase the content of Art. 6 of ATAD 1, is designed for the preservation of the legal certainty derived from existing case law on the matter.
Services Provided By Enterslice
With purpose and passion, our team bring our specialist skills across taxes, our deep knowledge of the industry and our insights to our client's service. We are able to respond to their specific needs with the help of the teams of professionals who offer the below-mentioned services with regard to Tax Compliance in Luxembourg.
Tax Compliance and Reporting
In an ever-fast-changing tax environment, companies facecomplex and moving reporting and tax compliance obligations. We consider the active management of corporate tax issues and tax compliance requirements as a way for businesses to realize their full potential in an agile, efficient and progressive way.
Our dedicated tax compliance team provides our clients with a complete range of services, such as:
- Advisory on Local corporate tax
- Corporate tax compliance
- Tax accounting and provisions preparation
- Global tax outsourcing
- Preparation of tax returns (income tax, VAT)
- Determination of tax deductions and allowances
- Computation of tax provisions
- Check for the tax assessments and statements
- Tax registration
- Follow-up of day-to-day matters
- Implementation of the e-tax reporting solutions
Direct Tax Advisory
It is important for businesses to adapt to the changes regarding direct taxation to enhance their competitiveness in a responsible and sustainable way.
With Our team, the clients have access to a network of tax professionals who understand their business and provide comprehensive and tailored advice to assist them in developing their tax strategy.
Combining tax expertise with sound industry knowledge, in particular in the area of real estate, private equity, funds and financial services, we can help our clients in a variety of ways, including.
- Advisory at both national and international levels to individuals, corporate entities, and other organisations
- Assistance in tax audits and appeal procedures
- Conducting direct tax quick-scans (if necessary linked to in-house training)
- Presenting direct tax training sessions
- Optimisation of the tax structures
- Tax due diligence
- Tax opinions
- Succession planning
- Transaction management
- Designing, planning, and implementing appropriate tax structures
Indirect Tax Advisory
Our Tax professionals can offer the clients consistent, seamless service, identifying risk areas and sustainable planning opportunities throughout the tax life cycle. We help them effectively deal with current and potential cross-border issues, from value-added tax (VAT) and goods and service tax (GST), global trade, customs duties and insurance premium tax to environmental and excise taxes. We can help them in meeting their compliance obligations and business goals around the world. Our Indirect Tax Advisory services include the following services.
- Review of the organisation’s establishments, activities, and supply chain for the potential identification of any VAT registration requirements;
- Management of the compliance requirements;
- Assistance in obtaining refunds of VAT paid abroad;
- Assistance with audits by tax authorities;
- In-depth VAT health checks, i.e. review and implementation of VAT internal controls and management processes for providing the company’s management with the necessary assurance that your VAT matters are properly managed;
- Advisory on indirect tax consequences of entering new markets, offering new services and products, and undertaking corporate transactions such as global restructuring, mergers, acquisitions, and capital reconstructions;
- Assistance in the designing and operation of VAT recovery methodologies
M&A Tax Advisory
Due to the growing momentum of the global economy, mergers and acquisitions conducted by group companies are one of the fundamental ways to strengthen market position and long-term growth strategy. With deal experience that comprises in-depth knowledge of local and tax, our team is well equipped to offer a full range of M&A tax services to corporate investors, which cover all phases of domestic and cross-border transactions. Our services include:
- Tax due diligence
- Structuring of acquisitions
- Reorganisation of financing models
- Vendor assistance in the sale process
- Post-deal integration, including transfer pricing services