LUXEMBOURG Law and Practice Contributed by: Romain Tiffon and Marie Bentley, ATOZ Tax Advisers
an SCS or SCSp is considered to constitute com - mercial profits if at least one of its general partners is a capital company holding at least 5% of its interests or the SCS/SCSP undertakes a commer - cial activity. When SCSs or SCSps are alternative investment funds, they are nevertheless deemed not to realise commercial activities (unless their general partner owns at least 5% of the interests).
tax (CIT) and municipal business tax (MBT) may apply – subject to certain conditions – to the net income derived from qualifying rights in patents (defined broadly) and copyrighted software. The exemption is limited to IP assets that are not marketing‑related and that were created, developed or enhanced after 31 December 2007, provided the income originates from eligible R&D activities. In addition, IP assets which qualify for the 80% CIT exemption are 100% exempt from net wealth tax. 2.3 Special Incentives Luxembourg’s tax framework contains multiple incen - tives tailored to specific industries. For that purpose, Luxembourg offers a wide range of investment vehi - cles, some of which benefit from a tax regime differing from that applicable to fully taxable corporate entities. Investment Funds The following regulated investment funds are exempt from any taxation on their income, but are subject to a so-called subscription tax on the value of their net assets: • undertakings for collective investment in transfer - able securities (UCITS) within the meaning of the UCITS Directive; • funds set up under Part II of the Luxembourg Law of 17 December 2010 on undertakings for collec - tive investment (UCIs) (ie, undertakings for collec - tive investment which are not UCITS) that qualify as alternative investment funds (AIF); and • specialised investment funds (SIFs), which are multi-purpose investment funds dedicated to so- called sophisticated investors. While the income exemption applies in the same way to all investment fund types listed above, the rate of subscription tax varies depending on the type of fund, from 0.01% to 0.05%. Some subscription tax exemptions apply in certain cases. Notably, actively managed exchange traded funds are exempted from subscription tax with effect as from 1 January 2025, aligning to the regime already applicable to passively managed exchange traded funds. Securitisation vehicles (SVs) set up as a securitisation fund (which acquires or assumes, directly or through
2. Corporate Tax Regime 2.1 Taxable Profits
Luxembourg computes taxable profits based on accounting profits prepared under Lux GAAP, then applies tax adjustments provided in the Luxembourg Income Tax Law (LITL). For CIT purposes, profits are taxed on an accruals basis, meaning income and expenses are recognised when earned or incurred, not when paid. Key adjustments under the LITL are as follows: • non‑deductible expenses (eg, certain provisions, fines, non‑business expenses); • depreciation based on tax depreciation rules, which may differ from accounting treatment; • participation‑exempt income (dividends, capital gains) is removed from the taxable base where exemption conditions are met; and • recapture rules, whereby expenses connected with exempt income may be added back. The end result is taxable profit subject to:
• corporate income tax (CIT); and • municipal business tax (MBT). 2.2 Technology Investments
Luxembourg offers targeted incentives for innova - tion‑driven activities. Research and development (R&D) expenses are generally tax deductible. Since 1 January 2018, Luxembourg has implemented an intellectual property (IP) regime that complies with the “modified nexus” approach endorsed by both the OECD and the European Union as part of the Base Erosion and Profit Shifting (BEPS) project. Under this regime, an 80% exemption from corporate income
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