Luxembourg Income Tax Law (LIR) for Companies in English

The SOPARFI in three articles

A Luxembourg holding company works because of Art. 166, Art. 147 and the Grand-Ducal Regulation of 21 December 2001 made under Art. 166. Dividends from qualifying participations are exempt, outbound dividends to qualifying parents bear no withholding tax, and the Regulation extends the exemption to capital gains on participations of at least 10% or with an acquisition price of at least 6 million euros. The anti-abuse rule in Art. 166 switches the exemption off for arrangements that are not genuine.

Financing companies

Interest is deductible only within the 30% of EBITDA or 3 million euros cap (Art. 168bis), and the pricing of intra-group loans must stand up to the arm’s length test of Art. 56 and Art. 56bis. Interest paid to related parties in low-tax or listed non-cooperative jurisdictions is also restricted (Art. 168).

Where the profit comes from

Title II does not define profit itself. Art. 162 sends companies back to the business profit rules of Title I: the balance sheet comparison of Art. 18, the valuation rules of Art. 23, depreciation from Art. 29 onwards, and the general deduction rule of Art. 45. Art. 40 ties the tax balance sheet to the commercial accounts unless a tax rule requires a different value, which is why the annual accounts matter so much for the tax return.

IP regime and roll-over relief

Art. 50ter exempts 80% of net income from qualifying IP assets, limited by the ratio of qualifying expenditure to overall expenditure, the OECD nexus approach. Gains on assets lost involuntarily or sold and reinvested can be rolled over into the replacement assets (Art. 53, Art. 54), and Art. 22bis lets shareholders exchange securities in mergers, divisions and share-for-share contributions without immediate tax (Art. 22bis).

Hidden distributions

Art. 164 is short but used constantly: any advantage a shareholder receives from the company because he is a shareholder is a hidden profit distribution. It is added back to the company’s profit, and in practice it is treated as a dividend for withholding tax purposes as well.

Reorganisations

Mergers, divisions and conversions can be carried out at book value if the conditions in Art. 170 and the following articles are met. A company that moves its seat and central administration abroad is treated as liquidated and taxed on its hidden reserves, unless the assets stay attributable to a Luxembourg permanent establishment (Art. 172).

Not on this page

Municipal business tax and net wealth tax are levied under separate laws in German, which have no published consolidated text. The provisions of Title I on personal income tax other than business profit and losses are not translated here.