Maximum Tax Rate Luxembourg

Dividends paid by companies resident in Luxembourg are subject to a withholding tax of 15%. Dividends are taxed at marginal tax rates, although 50% of dividends received by certain companies resident in the EU, as well as by companies domiciled in countries where Luxembourg has a tax treaty, are exempt. Married resident taxpayers are in most cases taxed jointly, so their combined income is reported on a single tax return. Registered partners may be taxed jointly, provided that certain conditions are met. From 1 January 2018, it will be possible to choose separate taxation, with joint taxation remaining the default item, even in the year of marriage or divorce. The sale of real estate in Luxembourg is subject to a registration tax of 7% (additional tax on the registration fee of 3% – in Luxembourg City). Profits from the sale of the principal residence are not taxed. The sale of other properties held for two years or less is taxed at the usual rates. In the case of longer holding periods, reduced rates may apply. Profits above 500 euros from the sale of movable property in place for less than 6 months are taxed at the usual progressive rates. Profits from the sale of movable property after 6 months of ownership are exempt from tax.

An exception is made for cases where a significant interest is held. A substantial stake is that of more than 10% of the capital of a company held (individually or jointly with family members) for 5 years before the sale. In this case, the capital gain from the sale of the property is taxed at half the progressive rate of income tax (up to a maximum of 22.89%). The corporate tax rate for companies with profits above €200,000 is 17%. Taxes are administered by government agencies. The Minister of Finance collects taxes through the Director of Taxation, tax offices and tax collection offices. The Tax Foundation`s International Tax Competitiveness Index (ITCI) measures the extent to which the tax systems of the 36 OECD countries promote competitiveness through low tax burdens on business investment and neutrality through well-structured tax laws. The ITCI considers more than 40 variables in five categories: corporate tax, personal income tax, excise tax, property tax and international tax rules. What is the classification of the Luxembourg tax code? Below, we have highlighted a number of tax rates, ranks, and measures detailing income tax, corporate tax, excise tax, property tax, and international tax systems. Different rates apply depending on the type of fund and employment status.

High marginal tax rates affect labour decisions and reduce the efficiency with which governments can generate revenue from their individual tax systems. The taxpayer must include in its tax base the CFC`s retained profits if those profits arise from agreements to obtain tax advantages and which are generated by the significant assets, risks and personal functions exercised by the taxpayer. The total effective tax rate in Luxembourg City is therefore 24.94%. There is also a solidarity tax, which is levied in addition to the amount of income tax, with rates varying between 7% and 9% depending on the level of income. As a result, the overall tax rate (including the solidarity tax) ranges from 0% to 45.78%. Long-term profits are taxable at 50% of the taxpayer`s total tax rate and there are exceptions that may apply in some cases. In general, the first €50,000 of profits made over an 11-year period are exempt. Short- and long-term gains and losses can be aggregated, although a total loss cannot be deducted from other income. In most cases, the sale of a principal residence is tax-free, although certain conditions must be met.

In addition, registration fees are levied at different rates on the sale of Luxembourg real estate to the capital of a company and in the context of certain other contracts. A deduction can be made for operating expenses that have not been reimbursed by the employer, with a minimum deduction of €540 for all taxpayers. A deduction for travel expenses is possible depending on the distance between home and work of the taxpayer if the distance is more than 4 km. Distances are determined by the state and are available up to a maximum distance of 30 km. The deduction is €99/km, which corresponds to a maximum possible deduction of €2,574. For companies with taxable income above €30,000, the combined effective corporate tax rate is 26.01% (19.26% + 6.75%). The rate can be reduced to 0% in case of significant participation. For example, tax is not withheld if dividends are paid to a company resident in a DTA (double taxation treaty) country and taxed at a rate of at least 8.5% that has held a stake of at least 10% or a stake with a purchase price of at least €1.2 million for at least 12 months.

Since 2018, married couples can decide whether to opt for separate or joint taxation. In an increasingly globalized economy, companies often expand beyond the borders of their home countries to reach customers around the world. Therefore, countries need to set rules that determine how or if business income earned abroad is taxed. International tax rules address the systems and regulations that countries apply to these business activities. This includes real estate held for less than 2 years, movable property held for less than 6 months and cases where the sale precedes the purchase of the property. Short-term gains and losses can be aggregated, and net income is taxed at marginal tax rates if it exceeds €500 in total. The tax is 0.5% on net assets up to 500 million. and 0.05% on net assets in excess of €500 million.

If the individuals have multiple employment relationships (including cases where both spouses are employed and have not chosen to file a return separately), only one “primary” tax card is issued. All other tax cards are “secondary” tax cards and have a fixed withholding tax rate of 33% (tax class 1) or 15% (tax class 2). For many taxpayers, this can result in a tax liability that falls due at the end of the year, as the taxes withheld are often insufficient overall. Caution is advised because the taxes due with the tax return at the end of the year can be substantial. Corporate income tax is a corporate income tax. All OECD countries levy a corporate income tax, but tax rates and bases vary considerably from country to country. Corporate taxes are the most damaging tax on economic growth, but countries can mitigate this damage by lowering corporate tax rates and providing generous capital cost allowances. There are additional corporate taxes than corporate income tax. For example, there is value added tax (VAT), which is implemented under the VAT Directive (2006/112/EC) at a general rate of 17% (with reduced rates of 14%, 8% or 3%). The tax is levied at progressive rates ranging from 8% to 42%. The income scale is highly fragmented with 23 positions. The first 11,265 euros are exempt; The maximum rate of 42% applies to income above 200,000 euros.

Individual taxes are one of the most widely used means of generating government revenue in OECD countries.