LUXEMBOURG Law and Practice Contributed by: Michiel Boeren, Jeronimo Charvarria, Maxime Grosjean and Gauthier Mary, Tiberghien
Non-Resident Individuals Non-resident individuals are only subject to tax on income sourced in Luxembourg, including rental income from property located in Luxembourg. If a non‑resident owns Luxembourg immovable property through a permanent establishment, the rental income is treated as business profits of that PE and subject to tax under standard corporate tax rules. Luxembourg Resident Entities Resident companies For Luxembourg tax resident companies, income from immovable property is usually categorised as business profits and is subject to tax in accordance with stand - ard corporate tax regulations. As such, the income is subject to corporate income tax (CIT) and municipal business tax (MBT), and the company remains subject to net wealth tax (NWT) on its net assets. Real estate levy on Luxembourg investment funds Luxembourg imposes a specific 20% real estate levy on certain corporate collective investment vehicles that own real estate located in Luxembourg. This levy applies to: • specialised investment funds (SIF); • Part II undertakings for collective investment (UCI); and • reserved alternative investment funds (RAIF). To fall within the scope of the levy, these vehicles must be organised in corporate form (eg, SA, SCA or Sàrl). Funds structured as SCSs, SCSp or FCPs are notably excluded from this tax. The 20% levy applies to income derived from Luxem - bourg real estate, whether held directly or indirectly through tax-transparent entities, such as partnerships or FCPs. Taxable income includes: • rental income from Luxembourg real estate proper - ties; • capital gains from the disposal of such properties; and • income from the disposal of interests in tax trans - parent entities, provided that the value of these interests reflects the underlying Luxembourg real estate.
Non-Resident Entities Non-resident companies without Luxembourg PEs Non-resident companies are subject to CIT on income derived from real estate located in Luxembourg. As this income is not considered to be business profits, and in the absence of commercial activities in Luxem - bourg, the MBT is not usually due. Non-resident companies with Luxembourg PEs Where immovable properties are allocated to PEs, the income is generally classified as business income and is subject to CIT and MBT at the level of the PE. 3.2 Business Profits Luxembourg Resident Individuals Individuals who are Luxembourg tax residents are taxable on their worldwide business income, subject to double tax treaty provisions. Business profits are aggregated with income from other sources and are subject to tax at progressive personal income tax rates. Individuals carrying out a commercial activity in Lux - embourg are also subject to MBT. The rate varies by municipality (currently 6.75% in Luxembourg City). However, individuals benefit from an annual allowance of EUR40,000, meaning MBT is only levied on busi - ness profits exceeding this amount. Non-Resident Individuals Non-residents are subject to tax on business income only if it is attributable to a PE or a permanent rep - resentative located in Luxembourg. If a non-resident has a PE or permanent representative established or present in Luxembourg, the net income attributable to it is subject to tax in the same way as that of residents: it is subject to progressive income tax rates and MBT (after the EUR40,000 allowance). In the absence of a PE or permanent representative, business profits are not subject to tax in Luxembourg. Luxembourg Resident Entities In accordance with the principle of commerciality by legal form, any income realised by Luxembourg capital companies (eg, SA, Sàrl) is considered as busi - ness income, regardless of its actual source or nature, unless an entity is specifically exempt from income
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