LUXEMBOURG Law and Practice Contributed by: Michiel Boeren, Jeronimo Charvarria, Maxime Grosjean and Gauthier Mary, Tiberghien
tax. Consequently, income is treated as business income, whether it stems from real estate, passive income, capital gains, etc. Resident companies are subject to CIT, the solidar - ity surcharge and MBT on their worldwide taxable income at an aggregate rate of 23.87% (2026 rate for entities established in Luxembourg City) for taxable profits exceeding EUR200,000. Certain exemptions apply to dividend income and capital gains under the participation exemption. Luxembourg companies are also subject to NWT at a rate of 0.5% on their net wealth (subject to applicable exemptions and a lower Non-resident companies with Luxembourg PEs If a non-resident company operates through a PE or a permanent representative creating taxable presence in Luxembourg, the PE is treated similarly to a resident commercial company regarding the income attribut - able to that PE. The net profits generated by the PE are considered business income and are subject to CIT and MBT; NWT is assessed on the net assets allo - cated to the PE. Non-resident companies without Luxembourg PEs In the absence of a PE or a permanent representa - tive creating taxable presence in Luxembourg, the income does not automatically become commercial. Consequently, MBT does not apply. The non-resident is therefore subject only to CIT (the rate for 2026 is 17.12%, including surcharge). 3.3 Passive Income Luxembourg Resident Individuals Passive income is generally subject to progressive income tax rates, although significant tax reliefs apply. • Dividends from qualifying companies are exempt rate for high net wealth). Non-Resident Entities from tax on 50% of their gross amount. If the dividend is paid by a Luxembourg company, the standard 15% domestic withholding tax is fully creditable against the final tax liability. For qualify - ing foreign dividends, the foreign withholding tax credit is limited to the Luxembourg tax due on that specific income, and any uncredited excess foreign tax is only partially deductible.
• Interest income paid by a Luxembourg paying agent (and certain foreign agents) to a resident individual is typically subject to a final withholding tax of 20% (RELIBI regime). Interest not covered by this regime (eg, from non-EU sources) is subject to tax at progressive rates. • Royalties are aggregated with other taxable income and are subject to tax at progressive rates. A deduction for expenses is often permitted. Non-Resident Individuals Non-resident individuals are only subject to tax in Luxembourg on specific Luxembourg-source income. • Dividends paid by Luxembourg companies are generally subject to a 15% withholding tax, which is considered the final tax liability for non-residents. While this rate may be reduced under applicable tax treaties, it is rarely reduced below 15% for indi - vidual shareholders, with a few notable exceptions, such as Singapore, where the withholding rate is reduced to 0%. • Interest and royalties are generally exempt from withholding tax and are not subject to Luxembourg income tax, provided they are not attributable to a PE (or similar taxable presence maintained) in Luxembourg. • Some exceptions exist for certain profit-sharing interest payments (which are treated as dividends) and royalties paid to artists and sportspeople for services performed in Luxembourg, which may trigger specific withholding taxes. Luxembourg Resident Entities For Luxembourg tax resident companies, passive income is subject to corporate taxation. However, under the Luxembourg participation exemption, divi - dends (including liquidation distributions) may be fully exempt, provided that certain cumulative conditions are met on the date of the payments, which can be summarised as follows: • the subsidiary is covered by the EU Parent-Sub - sidiary Directive or is a capital company subject to an income tax comparable to the Luxembourg CIT (at least 8% if the foreign tax is compulsorily levied based on a system similar to that in Luxembourg);
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