Luxembourg

*Updated August 2020*

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• Legal system
• Inheritance and succession
• Estate planning
• Taxation
• Residence and domicile
• Other relevant information

Legal system

Civil law.

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Inheritance and succession

Succession

Forced heirship exists for direct descendants only, pursuant to the Civil Code. It corresponds to half of the assets where there is one child; two-thirds where there are two children; and three-quarters where there are three children or more. The disposable part can be bequeathed with no limitation.

The surviving spouse does not benefit from forced heirship. Legislation: Civil Code, articles 718 and following. Special exemption/immunisation will be granted for family/corporation transfer to the next generation (under the condition that it must be a family-owned business).

Family law and defined inheritance rules

Yes. In the absence of a will, succession is ruled by legal provisions in the Luxembourg Civil Code. The inheritance rules can be summarised as follows (if there are any individuals in a preceding order, they exclude the succession of the next ones, except for orders 1 and 2):

• Descendants (order 1).
• Surviving spouse (order 2).
• Parents together with brothers and sisters and their descendants (order 3).
• Grandparents and other ancestors (order 4).
• Other collaterals and their descendants up to the sixth degree (order 5).
• State of Luxembourg.

Specific rules apply to persons belonging to the same order and who inherit together from the same de cujus. Where the deceased had a surviving spouse and children the estate is deemed to be divided in equal parts between the children of the deceased, rights of the surviving spouse must be observed. In this case the surviving spouse has the following option:

• A free occupation right during their lifetime of the principal dwelling, including all its furniture, or
• The ownership of part of the succession corresponding to the part that would have been received by one additional child, which cannot be less than one-quarter of the succession.

In absence of a choice within the deadline (three months and 40 days after the death), the surviving spouse is considered to have chosen the first option.


Probate process

A will must have been made with free consent, by a capable person (16+ and with mental capacity) at the time the will is made. Three main forms of will available are: 


• Holograph will: a handwritten will, dated and signed by the testator;
• Public will: given orally to a notary, in the presence of two witnesses or two notaries.
• Mystic or secret will: a form of holograph will.

Mental capacity

Legislation: Civil Code, articles 488 and following.

People over 18 who are weakened by a disease, physical disability or their age and who suffer an alteration of their mental capacities may be placed under the protection of justice or under wardship by a court decision. The purpose of the protection of justice regime is to protect an adult in their daily life, while the protected person maintains the ability to exercise their rights. As a consequence of this regime, any deed concluded by the protected person can be withdrawn or reduced if considered excessive, or be cancelled if it can be proved that the person was suffering from a mental problem at the time of the act.

The wardship regime implies that the protected person is not capable of exercising their rights and is therefore not able to contract any engagement or manage their wealth without the consent of their family board.

For people who are in need because of their extravagance (prodigalité), intemperance or idleness, a regime of guardianship, similar to wardship, is provided by the Civil Code (one guardian as opposed to a family board can exercise the protected person’s rights).

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Estate planning

Use of trusts in estate planning

The concept of the Anglo-Saxon trust is not codified in Luxembourg but in 2003 Luxembourg ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition, 1 July 1985. By application of this law, Luxembourg recognises the rules applicable to foreign trusts.

Use of foundations in estate planning

The use of foundations for estate planning in Luxembourg is not yet common, but a draft law  was filed with the Luxembourg parliament on 22 July 2013 by the Minister of Finance aiming to introduce a new type of foundation into law – the ‘fondation patrimoniale’. This will be dedicated to estate planning and will benefit from a favourable tax regime with the ability to issue depositary receipts entitling the division of economic and legal ownership in the same way as the Dutch Stichting Administratiekantoor. This new vehicle is still awaited by the professionals.

Types of entities

• The Luxembourg Civil Company (LCC) is commonly used for estate and inheritance planning. The rules applicable to the LCC are flexible and it may be used to reduce taxes due on inheritance and donations. The SPF (Société de gestion de patrimoine familial) is a vehicle created for individuals intending to manage their financial assets and that benefits from a special tax regime (income tax exemption), only subject to annual subscription tax of 0.25 per cent determined based on the share capital and share premium).
• The Société d’investissement en capital à risque (SICAR) is a vehicle created by a law of 2004 specifically designed for investors in venture capital and private equity. The SICAR combines an attractive tax regime (exemption of income from transferable securities) with lighter regulatory requirements compared with a regulated investment fund.
• The Specialised Investment Fund (SIF) is a regulated investment vehicle introduced  in 2007, with the purpose of creating more flexibility (in terms of investment restrictions, leverage rules, reporting, company law, etc.) and extending the circle of eligible investors compared to other regulated funds. SIF is not subject to income taxes but only to an annual subscription tax of 0.01 per cent of its net asset value.
• The Soparfi (Société de participations financières) is a limited liability company, public company, partnership limited by shares having as main activity the holding of important participation. A Soparfi is fully subject to tax but benefits from an exemption for dividends income and capital gains deriving from its important shareholding. Soparfi benefit from the double tax treaties concluded by Luxembourg and EU parent subsidiary directive.
• In relation to the exchange of information and transparency, Luxembourg has adopted a new law regarding bearer shares. In order to comply with the law, a depositary of the shares will have to be appointed by the management of the companies falling into the scope of the law. The following entities are concerned: public limited companies (sociétés anonymes), partnerships limited by shares, (sociétés en commandite par actions) and investment funds (fonds d’investissement) with variable capital (SICAV), SICAR, SIFs and mutual funds (FCP). A limited number of professionals can be a depositary under the condition that they are located in Luxembourg and are not shareholders of the company. The bearer shares shall be registered by the depositary and so shall any detailed information relating to them.

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Taxation

Income tax system

Luxembourg resident companies and individuals are taxable on their worldwide income. Non-residents are only taxable on their income from Luxembourg source.

Personal income tax rates

Resident individuals are taxable at progressive tax rates, comprising 23 brackets whose rates vary between 0 per cent (up to EUR11,265) and 40 per cent (beyond EUR100,000). Various deductions, exemptions and allowances are available, and can reduce the income tax due. See the table below for more detail.

Amount of income (EUR)	Rate
Up to 11,265	0%
From 11,265 to 13,137	8%
From 13,137 to 15,009	9%
From 15,009 to 16,881	10%
From 16,881 to 18,753	11%
From 18,753 to 20,625	12%
From 20,625 to 22,569	14%
From 22,569 to 24,513	16%
From 24,513 to 26,457	18%
From 26,457 to 28,401	20%
From 28,401 to 30,345	22%
From 30,345 to 32,289	24%
From 32,289 to 34,233	26%
From 34,123 to 36,177	28%
From 36,177 to 38,121	30%
From 38,121 to 40,065	32%
From 40,065 to 42,009	34%
From 42,009 to 43,953	36%
From 43,953 to 45,897	38%
From 45,987 to 100,102	39%
From 100,102 to 150,000	40%
From 150,001 to 200,004	41%
Beyond 200,004	42%

Corporate income tax rates

Corporate income tax rates have been reduced as from 1 January 2020 and the tax rate is now 17 per cent (instead of former 18 per cent in 2018) if income exceeds EUR200,000.

If taxable income does not exceed EUR175,000. For example, for Luxembourg City, the current effective combined income tax rate of 24.94 per cent, applicable for 2019 and 2020 including the corporate income tax, municipal business tax and the contribution to the unemployment fund.

As from 2017, corporations are required to submit their corporate income tax returns electronically only. As from 1 January 2014, resident companies are subject to a minimum CIT following two different regimes:

• A fixed minimum CIT of EUR3,000, if the sum of their financial fixed assets, receivables towards related companies, transferable securities and cash at bank represents more than 90 per cent of their total assets.
• In other cases, the minimum CIT varies from EUR500 to EUR20,000, depending on the total of the balance sheet.

As from 1 January 2017, the minimum net wealth tax, introduced in 2016, replaces the minimum corporate tax and is increased from EUR3,210 to EUR4,815 for Soparfis.

Amount of the balance sheet (EUR)	Minimum CIT (EUR)
Up to 350,000	535
From 350,000 to 2,000,000	1,605
From 2,000,000 to 10,000,000	5,350
From 10,000,000 to 15,000,000	10,700
From 15,000,000 to 20,000,000	16,050
Beyond 20,000,000	21,400

Capital gains tax

a) Individuals

• Speculative capital gains realised by individuals within a certain period after acquisition (two years for immovable, six months for other assets) are fully taxable at the progressive tax rate.
• Capital gains on substantial shareholdings in resident or non-resident corporations are subject to tax at a rate corresponding to half the global average tax rate applicable to the taxpayer when realised more than six months after acquisition (specific allowances and revaluation of acquisition price are provided by the law). A substantial shareholding is defined as > 10 per cent at any time during the five previous years preceding the sale, held with spouse and/or minor children, directly or even indirectly through a company in which the taxpayer has more than 50 per cent voting rights. Favourable rules for individuals becoming Luxembourg resident are currently being developed.
• Capital gains in relation to non-substantial shareholdings (10 per cent or less) are not taxable if they are realised more than six months after acquisition.
• Gains realised on the sale of real estate more than two years after purchase are subject to tax at a rate corresponding to half the global average tax rate applicable to the taxpayer (specific allowances and revaluation of the real estate acquisition price are provided by the law). Where the immovable was the principal dwelling of the individual, the capital gain is tax exempt.

b) Companies

• Provided certain conditions are fulfilled, capital gains on qualifying shareholding are exempt from CIT and MBT, by application of the participation exemption regime. Broadly speaking, the main condition to benefit from this regime is the holding of a shareholding whose acquisition price amounts to at least EUR6 million or representing at least 10 per cent of the share capital of a company fully subjectto tax during an uninterrupted period of 12 months.
• Capital gains realised on qualifying shareholding remain fully subject to tax up to the amount of expenses in direct economic connection with this shareholding that would have been deducted in the year of disposal and in previous years (‘recapture rule’).
• Capital gains on patent, trademark, domain name, designs and models and copyrights on software are exempt up to 80 per cent but remain taxable for up to 80 per cent of expenses in connection with this intellectual property income that would have been deducted in the year of disposal and in previous years.
• The taxation of the capital gains realised on building or non-depreciable assets held for more than five years may be suspended provided the sale price is rolled over into a replacement asset booked as fixed assets.

Non-residents

Provided Luxembourg has the right to tax the income based on a double-tax treaty provided there is no double-tax treaty applicable, non-residents are taxable in Luxembourg on the following income derived from Luxembourg:

• Employment income if it is from a Luxembourg source.
• Business income derived through a permanent establishment located in Luxembourg.
• Self-employment income exercised in Luxembourg.
• Income derived by artists and sportsmen from an activity performed in Luxembourg.
• Income from agriculture or forestry activities located in Luxembourg.
• Income from immovable property located in Luxembourg.
• Pensions resulting from an activity formerly carried on in Luxembourg or paid by a Luxembourg public entity.
• Dividends from Luxembourg source and interest on profit participating bond or other similar profit participating instruments derived from Luxembourg source are never taxable in Luxembourg, interest and dividends can be exempted from withholding tax by application of a provision of the Luxembourg law.
• Capital gains on real estate located in Luxembourg.
• Capital gains on substantial shareholding (>10 per cent) realised within the six months after acquisition except for shares in certain specific vehicles (SPF, UCI, SICAR).

Withholding tax rate (non-treaty)

a) Individuals

• Dividends: 15 per cent
• Interest: generally 10 per cent in full discharge for residents, automatic for Luxembourg source interest and on demand for interest from abroad.
• 0 per cent for non-residents, except where interest paid to non-resident European citizens who did not opt for the exchange of information with their residence country: 35 per cent as from 1 July 2011 (EU Savings Directive).
• 15 per cent on certain profit participating bonds.
• Director fees: 20 per cent, final for non-residents under certain conditions.
• Income derived by artists and sportsmen: 10 per cent, final for non-residents under certain conditions.
• Liquidation proceeds: 0 per cent.
•  Royalties: 0 per cent.

b) Companies

• Dividends: 15 per cent and 0 per cent if the participation qualifies for the participation exemption regime.
• Interest: no withholding tax (exception for certain profit-participating bonds, which are subject to the 15 per cent withholding tax).
• Liquidation proceeds: 0 per cent.
• Royalties: 0 per cent.

Withholding tax rate (treaty)

Treaties generally provide that the source state is entitled to levy a withholding tax on interest but Luxembourg law provides that interest is generally not subject to withholding tax, and does not suffer any withholding tax when paid by a Luxembourg debtor.

Treaties may provide reduced withholding tax rate for dividends or even an exemption in certain cases, but most of the treaties concluded by Luxembourg provide generally a 15 per cent withholding tax rate.

Taxation at death

Inheritance taxes are levied on all property inherited from a Luxembourg resident individual at the time of death, except for real estate located abroad. Moreover, transfer duties upon death are levied on real estate located in Luxembourg inherited from a non-resident.


Properties inherited between spouses with common children and in direct line (to the extent of the legal portion) are exempt from inheritance taxes and transfer duties upon death. Note that people who are ‘partners’ of a ‘partenariat’ (domestic partnership) are subject to the same tax treatment as spouses after being partners for at least three years.

In other cases, inheritance tax and transfer tax rates range between 2.75 per cent and 48 per cent depending on the relationship between deceased and beneficiaries and the amount of the estate inherited.

Note that Luxembourg has only signed one international treaty with regard to succession, the Hague Convention on the Conflicts of Laws relating to the Form of Testamentary Dispositions, 5 October 1961. Luxembourg has not entered into any other specific bilateral agreement/convention covering inheritance or donations.


Other taxes

a) Gift tax

Under the Luxembourg Civil Code, donations must be made through a notarial deed. Donations by Luxembourg notarial deed must be registered and incur gift taxes with rates ranging between 1.8 per cent and 14.4 per cent depending on the relationship between deceased and beneficiaries.


No gift taxes are due on donations of real estate located abroad made through a Luxembourg notarial deed. Manual gifts do not have to be made through notarial deed, so no taxes are due (except if the donor dies within the year).

b) Transfer taxes

The sale of real estate located in Luxembourg is subject to a 6 per cent registration duty plus a 1 per cent transcription tax (for the real estate located in Luxembourg city, an extra 50 per cent registration duty applies, leading to an effective rate of 9 per cent plus 1 per cent transcription tax).

Tax treaties

Seventy five tax treaties already concluded, about 30 under negotiation.

Tax information exchange agreements

As a founding member of the EU, Luxembourg follows all the exchange of information rules adopted by the EU. In addition, about 39 double-tax treaties concluded by Luxembourg provide exchange of information based on the OECD model.

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Residence and domicile

Special rules on becoming resident

• Capital companies and enterprises may revalue their assets at market value upon transfer of residence from abroad to Luxembourg (‘step up’).
• For individuals, no step up rule currently exists but the draft law of 22 July 2013 provides that step up at market value on important shareholding (>10 per cent) could be performed upon transfer of residence to Luxembourg. 

Special rules on ceasing residence

• People who have been Luxembourg resident for more than 15 years are still subject to tax in Luxembourg on capital gains on substantial shareholding when realised within five years after exit provided there is no double taxation treaty between Luxembourg and the new residence country or that Luxembourg has the right to tax this kind of capital gains by application of the relevant double tax treaty.
• No exit tax exists for individuals.
• Companies transferring their seat outside Luxembourg are subject to tax on latent capital gains upon exit. 

Domicile concept for gifts and inheritance

a) Gifts: gifts are taxable in Luxembourg if the immovable is located in Luxembourg or if the gift deed took place in front of a Luxembourg notary.

b) Inheritance: people are considered as Luxembourg resident and thus are subject to Luxembourg inheritance tax if:

• they have had a real, effective and uninterrupted residence in Luxembourg; or
• they have had the seat of their wealth in Luxembourg (ie manage wealth from Luxembourg).

Taxation of holdings by non-residents on death and of gifts

a) Gifts: Luxembourg gift tax only if the deed is performed in front of a Luxembourg notary for movable assets. Luxembourg gift tax is always due for donation of real estate located in Luxembourg.

b) Death: no Luxembourg inheritance tax if deceased was not a Luxembourg resident, except for Luxembourg real estate subject to transfer duty upon death.

Reporting/auditing requirements

Yes. Tax form to be filled in when inheritance tax/transfer duty upon death due in Luxembourg.

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Other relevant information

Asset protection laws

Luxembourg concluded more than 90 treaties for protection of investments and the Luxembourg internal law provides strong protection rules for the owner of Luxembourg assets.

Foreign currency restrictions

No.

Foreign ownership restrictions

No.

AML/due diligence and other requirements and regulatory procedures for advisors

• To establish a trust: not applicable.
• For incorporation: origin of funds and identity of the ultimate beneficial owner must be fully disclosed.
• To open a bank account: origin of funds and identity of the ultimate beneficial owner must be fully disclosed.

Other points of interest

A new law, dated 22 March 2018, relating to an intellectual property (IP) regime, introduces a new tax benefit for companies acting in the scope of research and developments. The law creates a frame for IP rights and defines it, while excluding certain types of eligible assets previously included in the scope. Trademarks and domain names are not eligible under the new law. Patents and copyright on software remain eligible for the former amount, the level of maximum exempted income is defined and will be appreciated according to substance criteria, and the direct or indirect costs supported by taxpayer linked to their research activities. This new regime applies as from 2018 tax year and is in line with the OECD requirements.

Key resources for further information

WEBSITES

• Directory of public websites of the Grand Duchy of Luxembourg: www.etat.lu
• Luxembourg government – direct contributions: www.impotsdirects.public.lu
• Luxembourg for Business: www.luxembourgforbusiness.lu
• Commission de Surveillance du Secteur Financier: www.cssf.lu
• IBFD: www.ibfd.org

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