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Luxembourg / Luxembourg

Luxembourg

Location and infrastructure

The Grand Duchy of Luxembourg is located in Western Europe, bordered by Belgium, France, and Germany. Luxembourg has efficient road, rail and air transport facilities and services. The road network has been significantly modernised in recent years with 147 km of motorways connecting the capital to adjacent countries. The country has one International Airport. The telecommunications industry in Luxembourg is liberalized and the electronic communications networks are significantly developed. 

Population

The population of Luxembourg as of 1 January 2013 was estimated at 537,039 (55.5 % Luxembourgers and 44.5 % of foreign nationality). A more detailed breakdown by nationality shows that the Portuguese community is still the largest group, accounting for more than a third of the foreign population. The Italian population has been stable for the past ten years at approximately 20 000. Some 47.000 foreigners come from bordering countries (France, Belgium and Germany).

Language

Three languages are recognized as official in Luxembourg: French, German, and Luxembourgish, a Franconian language of the Moselle region that is also spoken in neighboring parts of Belgium, France and Germany.

Currency

The official currency in Luxembourg is the Euro (EUR).

Tax system

Luxembourg tax resident companies are taxed on their worldwide income whereas non-Luxembourg tax resident companies are taxed only on income generated in Luxembourg.

The main characteristics of Luxembourg’s tax regime are:

  • The corporation tax rate is effective 28.15% or 29.22% (i.e. including Surcharge and Municipal Business Tax);
  • Ordinary tax losses can be carried forward indefinitely, but they cannot be carried back;
  • Capital gains are taxable effective 28.15% or 29.22%, except disposal of shares in qualifying participations;
  • No stamp duty is taxed;
  • No capital duty is taxed;
  • The VAT standard rate is 15%;
  • Dividend income received by a Luxembourg company is taxable. However, if the dividend income is received from a qualifying participation then such dividend income is exempt;
  • Dividend payments to local and foreign recipients are subject to a 15% withholding tax. 
  • Dividend payments to a foreign company may be exempt from withholding tax if: 

(a) the foreign company owns directly or indirectly at least 10% of the capital of the dividend paying company (or shares with an acquisition value of at least €12m) for an uninterrupted period of at least 12 months; and 

(b) the foreign company is subject to tax in its country at a rate of at least 10.5%. 

  • Dividend payments to a local company may be exempt from withholding tax if the parent company owns directly or indirectly at least 10% of the capital of the dividend paying company (or shares with an acquisition value of at least €1.2m) for an uninterrupted period of at least 12 months. 
  • Dividend paid by UCITs are exempt from withholding tax;
  • Interest income is taxable under corporation tax i.e. 28.15% or 29.22%;
  • No withholding tax on the payment of ordinary interest to local or foreign recipients;
  • Royalty income is taxable under corporation tax i.e. 28.15% or 29.22%. The legislation provides for an 80% exemption for royalty income from the use and the right to use patents, trademarks, design, domain names, models and software copyrights.

Double tax treaties

Luxembourg has signed Double Tax Treaties with other countries, all of which are based on the OECD Model. The following countries are among those which have double-tax treaties with Luxembourg, although not all have been ratified at the time of writing:

  • Albania
  • Armenia
  • Austria
  • Azerbaijan
  • Bahrain
  • Barbados
  • Belgium
  • Brazil
  • Bulgaria
  • Canada
  • China
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Fyrom
  • Georgia
  • Germany
  • Greece
  • Guernsey
  • Hong Kong
  • Hungary
  • Iceland
  • India
  • Indonesia
  • Ireland
  • Isle of Man
  • Israel
  • Italy
  • Japan
  • Jersey
  • Kazakhstan
  • Kuwait
  • Laos
  • Latvia
  • Liechtenstein
  • Lithuania
  • Malaysia
  • Malta
  • Mauritius
  • Mexico
  • Moldova
  • Monaco
  • Morocco
  • Netherlands
  • Norway
  • Panama
  • Poland
  • Portugal
  • Qatar
  • Romania
  • Russia
  • San Marino
  • Saudi Arabia
  • Seychelles
  • Singapore
  • Slovakia
  • Slovenia
  • South Africa
  • South Korea
  • Spain
  • Sweden
  • Switzerland
  • Taiwan
  • Tajikistan
  • Thailand
  • Trinidad and Tobago
  • Tunisia
  • Turkey
  • United Arab Emirates
  • United Kingdom
  • United States
  • Uzbekistan
  • Vietnam

Legal system

Luxembourg is a parliamentary representative democracy headed by a constitutional monarch. The Constitution of 1868 (under general reform at the time of writing), organizes a flexible separation of powers between the executive and the parliament, with the judiciary watching over proper execution of laws.

Banking

Banking is the largest sector in the Luxembourg economy. The country has specialised in the cross-border fund administration business. As Luxembourg's domestic market is relatively small, the country's financial centre is predominantly international. At the end of March 2009, there were 152 banks in Luxembourg. Political stability, good communications, easy access to other European centres, skilled multilingual staff, a tradition of banking secrecy and cross-border financial expertise have all contributed to the growth of the financial sector. 

Legal Entities

There are various legal entities in Luxembourg:

  • Luxembourg Societe Anonyme (Joint Stock Company)
  • Luxembourg Societe A Responsibilite Limite 
  • Luxembourg General Partnership
  • Luxembourg Limited Partnership
  • Luxembourg Branch of Overseas Company
  • Luxembourg 'Holding' Company