LUXEMBOURG Law and Practice Contributed by: Frédéric Feyten, Alejandro Dominguez Becerra, Gérard Maîtrejean and Pawel Hermeliński, CMS
at EUR400,000 (ie, any exceeding amounts will be fully taxable). The exemption applies until the end of the eighth tax year following that of the employee’s entry into service in Luxembourg. 1.2 Exemptions In Luxembourg, inheritance tax is levied on the transfer of assets upon death. The applicable rates depend, among others, on the relationship between the deceased and the beneficiary. Transfers between spouses or civil partners (if bound for at least three years by a declaration of partnership) and in direct line (eg, between parents and children) – are generally exempt from inheritance tax. Gift tax is imposed on the transfer of assets during the donor’s lifetime. The tax treatment depends on the form of the gift and the relationship between the donor and the recipient. Gifts of movable assets transferred by hand deliv- ery ( dons manuels ) are generally accepted without a notarial deed and are, therefore, not subject to gift tax, unless the donor dies within one year of the donation. Therefore, such donations are not taxed unless they are subsequently registered (eg, for legal certainty). 1.3 Income Tax Planning Luxembourg offers several tools for individuals, par - ticularly in the context of private wealth management. The country’s tax system is relatively favourable for certain types of income and provides some flexibility for structuring assets and transactions. • Capital gains taxation – in Luxembourg, capital gains realised by individuals on the sale of movable assets (such as shares) are generally exempt from tax if the assets have been held for more than six months and do not represent a substantial share - holding (ie, less than 10% of the share capital). • Use of holding companies and investment vehicles – Luxembourg is well known for certain investment vehicles, such as the holding company and the SPF ( Société de gestion de Patrimoine Familial ). These vehicles can be used to hold private wealth, benefiting from participation exemption on divi - dends, capital gains and net wealth tax subject to
certain conditions. In addition, Luxembourg invest - ment funds (eg, RAIF, SIF, etc) may also offer tax advantages, particularly for non-resident investors. • Wealth structuring – while there is no wealth tax for individuals in Luxembourg, careful planning of asset transfers (by gift or inheritance) can help to minimise exposure to inheritance and gift taxes, particularly by taking advantage of reduced rates for transfers between close family members. Bare ownership and usufruct transfers, also allow for a reduction of inheritance and gift tax, subject to conditions. • Others – life insurance contracts ( assurance-vie ) are commonly used as tax-efficient investment and succession planning tools. 1.4 Taxation of Real Estate Owned by Non- Residents Non-residents owning real estate in Luxembourg are subject to Luxembourg tax on rental income (ie, (i) for individuals, PIT at progressive rates and (ii) for com - panies, corporate income tax (including surcharge for the employment fund contribution) (CIT) at the rate of 17.12% in 2025 and potentially municipal business tax (MBT) at the rate of 6.75% for Luxembourg City in case of a commercial activity carried out by a per - manent establishment). Capital gains taxation will depend on whether the property is held directly or via a Luxembourg com - pany. Capital gains realised by a non-resident company upon the direct disposal of a Luxembourg real estate asset will be subject to CIT at the rate of 17.12% in 2025. Capital gains realised by a non-resident indi - vidual upon the direct disposal of a Luxembourg real estate asset will be subject to PIT at progressive rate. Reduced rates may be applicable under cer - tain conditions. In addition, the sale of a real estate property located in Luxembourg is subject to regis - tration duties, municipal surcharge and transcription tax which vary on an aggregate basis between 7% and 10% depending on the municipality in which the property is located. In case of a share deal (ie, disposal of the shares of the Luxembourg company holding the real estate
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