LUXEMBOURG Law and Practice Contributed by: Romain Tiffon and Marie Bentley, ATOZ Tax Advisers
1. Corporate Structures, Residence and Tax Treatment 1.1 Corporate Forms and Their Tax Treatment Businesses in Luxembourg commonly adopt corpo - rate forms because these entities offer legal certainty, limited liability and access to the jurisdiction’s exten - sive tax treaty network. The most frequently used incorporated forms are: • société anonyme (SA) – joint‑stock company, suit - able for large businesses; • société à responsabilité limitée (Sàrl) – private limited liability company, widely used for holding, financing and operational activities; and • société en commandite par actions (SCA) – part - nership limited by shares, often used in investment structures. These incorporated entities are treated as separate legal and taxable persons. They are generally subject to: • corporate income tax (CIT); • municipal business tax (MBT); and • net wealth tax (NWT). Luxembourg’s corporate tax system is entity‑based, meaning the entity itself – not the shareholders – is taxed on its worldwide income (for resident compa - nies). 1.2 Use and Taxation of Transparent Business Structures Luxembourg also provides several tax transparent vehicles, particularly attractive for investment funds, private equity structures and joint ventures. Common transparent entities are: • société en commandite simple (SCS) – common limited partnership; • société en commandite spéciale (SCSp) – special limited partnership, highly flexible, no legal person - ality, widely used for private equity, venture capital, real estate and debt funds; • fonds commun de placement (FCP) – mutual fund without legal personality and tax transparent; and • certain joint venture contractual arrangements.
Tax transparency means the entity is not taxed: income flows through to investors. It facilitates inter - national fund structuring and the use of investors’ own tax attributes. From a regulatory point of view, it is flexible – especially for AIFMD fund structures. In so far as the SCS and the SCSp are concerned, there may be very limited situations where they are either subject to MBT (where they are commercial - ly tainted) or to CIT (where they are considered as reverse hybrid). Sector-specific use is as follows: • private equity/venture capital – SCSp and SCS dominate; • real estate funds – SCSp, SCS or FCP depending on strategy; and • investment groups – holding companies structured with Sàrl/SAs on top and SCSp/SCS at the fund level. 1.3 Tests for Determining Tax Residence Luxembourg determines the tax residency of an entity based on either the place of incorporation or the place of effective management. An entity is considered Lux - embourg resident if: • it is incorporated in Luxembourg; or • its place of effective management (central adminis - tration) is located in Luxembourg. Effective man - agement includes where strategic decisions are made, board meetings held and senior manage - ment operates. For transparent entities, “residence” is relevant only for withholding tax assessments and eligibility for treaty benefits (rarely applicable) because transparent entities (SCS, SCSp, FCP) are not taxable persons. 1.4 Applicable Corporate and Individual Tax Rates Incorporated Businesses Corporate income tax (CIT) The ordinary CIT rate applicable to resident and non- resident collective entities in 2026 is:
275 CHAMBERS.COM
Powered by FlippingBook