LUXEMBOURG Law and Practice Contributed by: Michiel Boeren, Jeronimo Charvarria, Maxime Grosjean and Gauthier Mary, Tiberghien
Non-Resident Individuals Provided there is no permanent establishment or any other taxable presence in Luxembourg, non-residents are subject to capital gains tax only on specific Lux - embourg-source assets. • For real estate situated in Luxembourg, non-resi - dents follow the same rules as residents: specula - tive gains (less than five years) are subject to tax at ordinary rates, while long-term gains (more than five years) are subject to tax at half the global rate. • Non-residents are generally exempt from capital gains tax on shares in Luxembourg companies, unless: (a) they hold a “substantial participation” (more than 10%) and sell the shares within six months of acquisition; or (b) they were resident in Luxembourg for more than 15 years and became non-resident less than five years before the gain was realised. However, these rules do not apply to gains from shares in specific vehicles such as SPFs, SICARs or corporate UCIs, which remain exempt for non-resi - dents regardless of the participation size. Where a double tax treaty applies, these domestic provisions do not usually apply to gains on movable assets (shares), as the right to tax is typically allocat - ed exclusively to the country of residence. However, specific exceptions exist; for example, under the tax treaty between Luxembourg and the Netherlands, the source country retains the right to tax these gains if the taxpayer is a former resident holding a “substantial interest” in the company. Luxembourg Resident Entities For Luxembourg companies, capital gains are sub - ject to corporate taxation. However, gains realised on shares (including foreign exchange gains) may be fully exempt under the Luxembourg participation exemp - tion, provided certain conditions are met. Such con - ditions are practically the same as the participation exemption for dividends, except that the acquisition price must be at least EUR6 million. In principle, a capital gain becomes taxable up to the amount of aggregate expenses and write-downs relat -
ing to the participation, which were deducted during the year in which the exempt capital gain was realised and in previous years. However, such a capital gain can be offset against tax losses carried forward. Some share-for-share exchanges, mergers and demergers may benefit from rollover relief if certain conditions are met. Capital Gains Taxation of Non-Resident Entities Provided that there is no permanent establishment or any other taxable presence in Luxembourg to which the relevant assets are allocated, non-resident entities are subject to tax on specific Luxembourg assets. • Capital gains realised on the full or partial disposal of shares in a Luxembourg resident company are subject to corporate income tax in the hands of the shareholder if the participation represents a substantial shareholding (in broad terms, a direct participation in the capital of the company exceeding 10%) and the disposal occurs within six months after acquisition. Specific rules apply if the non-resident shareholder was a Luxembourg tax resident for more than 15 years in the past and became a non-resident less than five years prior to the disposal of such participation. However, Luxembourg’s taxation rights are usually restricted under applicable tax treaties. • For real estate located in Luxembourg, capital gains are generally classified as miscellaneous income rather than business income and are sub - ject to Luxembourg corporate income tax. 3.5 Employment Income Employment income is subject to progressive tax rates and includes salaries, bonuses and benefits in kind. Residents are subject to tax on their worldwide income, whereas non-residents are generally only subject to tax on income derived from professional activities performed in Luxembourg. Employers with a presence in Luxembourg must with - hold wage tax. This generally satisfies the employee’s tax liability, unless they have multiple income sources or choose to file a tax return to claim specific deduc - tions.
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