Luxembourg Taxation 2025: Complete Guide

Luxembourg offers a competitive and predictable tax environment. This guide presents the main taxes applicable to businesses and legal optimization strategies.

Corporate Income Tax (IRC)

2025 Tax Rates

To this rate is added an employment fund contribution of 7% of the IRC, bringing the effective rate to 16.05% or 18.19%.

Municipal Business Tax (ICC)

The ICC is a local tax whose rate varies by municipality. In Luxembourg City, the rate is 6.75%.

Effective Global Rate

Net Wealth Tax (IF)

Luxembourg companies are subject to an annual tax on their net wealth:

• Rate: 0.5% on the first €500 million of net wealth
• Reduced rate: 0.05% above €500 million
• Minimum: €4,815 (or €535 for certain small companies)

VAT (Value Added Tax)

2025 VAT Rates

Filing Thresholds

• Monthly: Turnover > €620,000
• Quarterly: Turnover between €112,000 and €620,000
• Annual: Turnover < €112,000

Holding Regime (SOPARFI)

Participation Exemption

The participation exemption regime allows a 100% exemption on dividends received and capital gains on disposal of qualifying participations.

Eligibility Conditions

IP Box Regime

The intellectual property regime allows an 80% exemption on net income from certain IP assets:

• Patents and supplementary protection certificates
• Software protected by copyright
• Utility models
• Patent extensions (clinical trial data)

The effective tax rate on eligible IP income is approximately 4.99%.

Nexus Approach

The exemption is calculated according to the OECD nexus approach, proportionally to R&D expenses incurred by the company itself.

Tax Treaties

Luxembourg has concluded more than 85 tax treaties with countries worldwide, reducing or eliminating double taxation on cross-border income.

Main Treaties

European Directives

Parent-Subsidiary Directive

Dividends paid between EU companies are exempt from withholding tax if the participation is at least 10% held for 12 months.

Interest-Royalties Directive

Interest and royalty payments between associated EU companies are exempt from withholding tax.

Anti-Abuse Rules (ATAD)

Luxembourg has transposed the ATAD directives with the following measures:

1. Interest Deductibility Limitation

Net interest expenses are deductible up to 30% of EBITDA. Exceptions: €3 million threshold, standalone entities, infrastructure projects.

2. CFC Rules (Controlled Foreign Companies)

Passive income from subsidiaries in low-tax countries (< 50% of Luxembourg's rate) may be taxed at the parent company level.

3. General Anti-Abuse Clause

Artificial arrangements whose main purpose is to obtain a tax advantage may be disregarded by the administration.

4. Exit Taxation

Unrealized gains are taxed upon transfer of assets or headquarters to another country, with possible deferral over 5 years within EU/EEA.

Pillar 2 - Minimum Taxation

From 2024, multinational groups with consolidated turnover > €750 million are subject to a minimum tax of 15% in Luxembourg.

• QDMTT: Qualified Domestic Minimum Top-up Tax
• IIR: Income Inclusion Rule
• UTPR: Undertaxed Profits Rule

Legal Optimization Strategies

1. Using the SOPARFI Regime

• Centralization of participations in Luxembourg
• Tax-free dividend flow-up
• Disposal of participations without taxable gain

2. IP Box and R&D

• Locating IP in Luxembourg
• Developing R&D to maximize nexus ratio
• Effective rate ~5% on IP income

3. Intra-Group Financing

• Intra-group loans with arm's length margins
• Attention to interest limitation rules
• Mandatory transfer pricing documentation

Filing and Deadlines