Taxation of businesses and individuals in Luxembourg

Before starting a business, it is recommended to familiarize yourself with the nuances of business taxation in Luxembourg. This jurisdiction is relevant if one wants to optimize the tax burden of companies and individuals. In a number of cases, it is possible to take advantage of tax benefits.

What is important to consider when opening a company

When planning the registration of a company in Luxembourg in 2021 it is necessary to take into account the nuances of the law. Many investors are attracted to the jurisdiction by the reliability of banks and favorable business conditions, protection of capital. Most often on the territory open holdings and investment funds.

The main nuances that you need to know when opening a company in Luxembourg in 2021 are the following:

• Financial statements are required every 12 months;
• Resident status is granted to firms that are operated from within the country;
• Profits that are taxed include all income that a resident firm earns except for losses;
• Residents are required to pay taxes on all income, regardless of where it was received;
• Non-residents are required to pay levies on income earned within the state.

The most popular forms of incorporation are LLCs, joint-stock companies, and partnerships. To register a company in the jurisdiction and optimize taxation, contact our experts at IT-OFFSHORE.

Domestic tax rates

Corporate profits are taxed within the state if the firm is a resident. The levy rate is 15% for companies whose profits do not exceed €175,000 per year. A levy 17% applies to companies whose taxable income is more than 200 000 euros annually.

In addition, companies may be required to pay a municipal fee, which amounts to 6.75%, as well as tax at the rate of 7% to the Employment Fund. The average rate for a company that is registered in Luxembourg and receives no more than 175 thousand euros annually is about 22.8%; if the rate of income is higher the rate can go up to 24%.

The tax rate on income of individuals is progressive and can range be from zero or up to 42%. The size of the fee varies depending on the income of the payer and marital status, the number of children.

Luxembourg companies, which are subject to the general regime, are required to pay the fee on their own funds at a rate of 0.5% of the number of assets. The general rate of value added tax is 17%. For some types of goods and services, there is a reduced fee of up to 3%. Some firms may not pay the value-added tax.

Sanctions in case of non-payment

If payments of contributions are delayed, the Tax Service charges penalties, which amount to 0.6% of the late payment each month. In some cases, companies may agree on the possibility of delay, in which case the sanctions are waived or are up to 0.2 percent.

If a tax return is overdue, penalties of 10% of the amount of the default are assessed. In addition, there is a risk of a fine of over a thousand euros.