Luxembourg taxes residents on worldwide income and non-residents on Luxembourg-source income only. Luxembourg operates an administrative assessment system: taxpayers file a return, and the tax administration (Administration des Contributions Directes, ACD) reviews and issues a formal assessment (bulletin d'imposition) determining the final liability.
The Luxembourg tax year is the calendar year. The standard individual filing deadline is 31 March of the following year, though extensions are readily available on request.
Luxembourg's headline corporate income tax (CIT) rate is 23.87% combined (CIT, solidarity surtax, municipal business tax, FY2025).
The headline personal income tax (PIT) rate is 42% plus 9% solidarity tax.
The standard VAT/GST (or equivalent consumption tax) rate is 17%.
An individual is a Luxembourg tax resident if they have their tax domicile there (a dwelling available for their permanent use, under circumstances suggesting intent to keep and use it - even a rented apartment can qualify) or their habitual abode - generally, an effective stay exceeding six consecutive months, even if that period overlaps two fiscal years or includes short interruptions. Executive directors and executive employees of Luxembourg companies are generally presumed resident. Residents are taxed on worldwide income; non-residents only on Luxembourg-source income.
A non-Luxembourg entity has a Luxembourg permanent establishment through a fixed place of business or a dependent agent habitually concluding contracts in Luxembourg on the entity's behalf, following the OECD Model Treaty definition as applied under Luxembourg domestic law and any applicable tax treaty.
Luxembourg's CFC regime (Article 164ter ITA, effective for tax years from January 1, 2019, implementing EU ATAD) applies where a Luxembourg taxpayer holds, directly or indirectly - alone or with related parties - more than 50% of the capital, voting rights, or profit entitlement of a foreign entity or permanent establishment, and that entity's actual tax paid is below 50% of the Luxembourg corporate tax that would apply to the same income (currently below roughly 9%, given Luxembourg's ~17% CIT rate). Where triggered, non-distributed CFC income arising from arrangements aimed at obtaining a tax advantage is included in the Luxembourg taxpayer's base and taxed at 17%, with a foreign tax credit for tax the CFC has already paid. Exclusions apply for CFCs with accounting profit under EUR 750,000 (or 10% of operating costs) or non-trading income under EUR 75,000.
Luxembourg has no statutory debt-to-equity ratio; in practice, the tax administration has long applied an 85:15 debt-to-equity ratio as an administrative benchmark for financing participations - though the Administrative Court has clarified this practice carries no binding legal force, meaning taxpayers can potentially argue for a different arm's-length ratio. Interest exceeding what a thinly capitalized structure would support can be recharacterized as a dividend, subject to 15% withholding tax. Separately, Luxembourg's ATAD-based interest limitation rule caps deductible net interest at 30% of tax-EBITDA.
Luxembourg does not use an elective check-the-box classification system, though its flexible holding-company and fund vehicles (particularly the SOPARFI) are frequently used in cross-border hybrid-entity structuring given favorable treatment in various counterparty jurisdictions. Luxembourg has implemented ATAD2-aligned anti-hybrid rules denying deductions for payments producing a hybrid mismatch outcome, and applies a general anti-abuse rule (GAAR) treating an arrangement as "not genuine" - and therefore disregarded for tax purposes - where it lacks valid commercial reasons reflecting economic reality.
No foreign bank account or foreign financial asset reporting regime exists in Luxembourg requiring residents to separately disclose foreign accounts; foreign income is reported through the standard annual tax return.
Dividends and capital gains from a qualifying participation are fully exempt from Luxembourg corporate income tax where the recipient holds, or commits to hold, an uninterrupted 12-month period a shareholding of at least 10% of the distributing company's share capital, or an acquisition price of at least EUR 1.2 million (dividends) or EUR 6 million (capital gains) - the acquisition-price alternative applies independently of the 10% test. The distributing company must be a fully taxable Luxembourg resident, an EU company covered by the Parent-Subsidiary Directive, or a non-EU company subject to a comparable tax of at least 8.5%-10.5% depending on the source. Since tax year 2025, taxpayers may elect to waive the exemption where it applies solely via the acquisition-price threshold (not the 10% test), generally to preserve carried-forward tax losses.
Luxembourg has a real foreign tax credit regime available to both individuals and companies for foreign tax paid on foreign-source income also taxed in Luxembourg, capped at the Luxembourg tax otherwise due on that income - though in practice, Luxembourg's extensive treaty network and participation exemption regime (see above) mean many cross-border holding structures rely on exemption rather than credit relief.
Luxembourg has signed 94 double tax treaties, of which 88 are currently in force; treaties with Cape Verde, Colombia, Ghana, Kuwait, and Oman remained not yet in force as of the most recent verification, and a treaty with Kyrgyzstan had not yet been signed. Most Luxembourg treaties incorporate the OECD Model's Article 26.5 information-exchange provisions.