LUXEMBOURG Law and Practice Contributed by: Michiel Boeren, Jeronimo Charvarria, Maxime Grosjean and Gauthier Mary, Tiberghien
1. Sources and Principles 1.1 Domestic Sources of International Tax Law The main sources of international tax law in Luxem - bourg are as follows: • constitutional principles (eg, the principle of legal - ity); • EU law transposed into Luxembourg law, such as the Parent-Subsidiary Directive, the Interest and Royalties Directive and the Anti-Tax Avoidance Directives; • tax treaties; • domestic tax legislation (eg, the Income Tax Law); • case law; and • administrative guidance (eg, circular letters). As of February 2026, Luxembourg has a comprehen - sive network of 88 tax treaties in force. 1.2 Hierarchy of Sources Luxembourg adheres to the principle of treaty supremacy, whereby duly ratified and officially pub - lished international tax agreements take precedence over conflicting domestic tax legislation. 1.3 OECD Model/United Nations Influence on Treaty Practice As a founding member state of the OECD, Luxem - bourg predominantly aligns its treaty policy with the OECD Model Tax Convention, with few deviations. The OECD Model and its Commentaries serve both as a reference point in treaty negotiations and as a tool for interpreting tax treaties. Luxembourg has incorporated some aspects of the UN Model in certain tax treaties with developing coun - tries. 1.4 Multilateral Instrument Luxembourg signed the Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on 7 June 2017 and deposited the instrument of ratification with the OECD on 9 April 2019. The MLI entered into force for Luxembourg on 1 August 2019, taking effect from
2020 depending on the type of tax and whether it has also entered into force in the other contracting state.
2. Territoriality, Residence and Permanent Establishment
2.1 General Principle of Territorial Taxation In Luxembourg, the territorial scope of taxation is governed by the principles of residence and source. Residents of Luxembourg, individuals and corporate entities, are subject to tax on their worldwide income, whereas non-residents are only subject to tax on income derived from Luxembourg. Relief from double taxation is available for foreign- source income derived by Luxembourg residents through exemption or credit, as set out in applicable tax treaties or domestic law. 2.2 Tax Residence of Individuals Under Luxembourg law, individuals are considered tax residents if they have their tax domicile or habitual abode in Luxembourg. A tax domicile is established when an individual has a dwelling at their disposal under circumstances that suggest their intention to keep and use it permanently. This standard requires the satisfaction of the following three main conditions. • Having a dwelling available – this does not mean that the individual must own the accommodation, but merely that they have the right to use it. • The dwelling is intended for residential use – it must be equipped in such a manner that the indi - vidual may reasonably reside therein and have at their disposal the amenities required for residential occupation, considering the specific circumstances of each taxpayer. • With the intent to keep and use it – this implies effective, regular and continuous use, as evidenced by the actual occupation of the dwelling. The notion of habitual abode refers to two possible distinct situations. • A continuous stay – this criterion is usually met when an individual resides in Luxembourg on a habitual basis, irrespective of the specific duration.
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