Synopsis
The Grand Duchy of Luxembourg is situated in Western Europe between Belgium, France and Germany and was created within the German Bund by the treaty of Vienna of 1815. In 1867 Luxembourg gained independence from Germany and organised itself as a constitutional monarchy with the legislative power vested in a democratically elected parliament.
Luxembourg is a member of OECD, the European Union, and Nato. The capital city is also called Luxembourg and is the centre of government, business and finance.
The legal system is based on Napoleonic code and is therefore similar to the Belgium and French legal systems. Population is approximately 500,000, 20% of whom are foreign nationals. French, German and English are widely spoken and used in business circles with French being the administrative language. The currency is the EURO.
The standard rate of corporation tax applicable to Luxembourg companies is 22.88% but additional municipal taxes can bring the aggregate rate to 30.38%. There are, however, two types of companies to which special tax regimes apply and which are therefore useful for tax planning purposes:
THE LUXEMBOURG HOLDING COMPANY (LAW OF 1929)
A Luxembourg holding company is exempt from all forms of Luxembourg taxation but its activities are restricted to the holding of shares and certain other investments. In particular the company may not advance funds to its shareholders, invest in commodities or futures or carry out any sort of commercial or industrial activity. The company may only hold property in so far as it is necessary for its own use but could, for example, own the shares of a property investment company. This type of company is specifically excluded from the tax treaties signed by Luxembourg except the treaty signed by China.
THE LUXEMBOURG SOCIETE DE PARTICIPATION FINANCIERE (SOPARFI) (LAW OF 1995)
Luxembourg was the first European country to extend its participation exemption regime and SOPARFI’s are now subject to the normal rate of national and municipal Luxembourg tax except that, subject to the fulfilment of certain conditions, dividends and capital gains are not taxed. Such companies are therefore able to take advantage of the EU parent/subsidiary directive 90/435. A SOPARFI is not excluded from the scope of the tax treaties concluded by Luxembourg and this may make this type of company extremely attractive for certain tax planning exercises. Luxembourg has signed more than 40 tax treaties with most EU countries, Canada, Czech Republic, Hungary, Japan, Korea, Morocco, Norway, Slovak Republic, Switzerland and the US.
Both of the above types of Luxembourg companies have similar corporate characteristics:
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Last reviewed: Wednesday, May 26, 2010
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. We do not accept any responsibility, legal or otherwise, for any error or omission.
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