How to pay business income tax

Luxembourg has a complex tax system with several types of taxes including income tax, corporation tax and municipal business tax. It is important to understand which rates apply to your business and how they are calculated.

IRC, corporate income tax

ICC, Municipal Business Tax

In Luxembourg, the combined corporate tax rate ranges from 22.8% to 24.94%, depending on the company's annual income.

Example of calculation of CIT for a company in Niederanven

Let's assume that your small business is registered as an ordinary company (e.g. SARL) in Niederanven. The taxable income per year is 174,000 euros. What will be the final tax burden when you calculate the municipal tax and the income tax?

First you have to calculate the income tax. How to do this?

1. Understand which tax to pay, IRC or IC?

   For SARLs, IRC. For sole proprietorships, partnerships such as SENC, SCS and GIE, GEIE groups — IC.

2. Correctly identify the amount of tax rate

   In our case 15%, since the income does not exceed 175,000 euros.

3. Calculate the amount of the tax burden

   Find 15% of 174,000 = 26,100 euros.

4. Set aside 7% of the resulting amount for the amount of the contribution to the Employment Fund

   Find 7% of 26,100 = 1,827 euros.

5. Calculate the final amount of income tax, taking into account the amount contributed to the Employment Fund

   26,100 + 1827 = 27,927 euros.

Then we have to calculate the obligatory tax to be paid to the municipality.

1. Take the basic municipal rate

   It is 3%, the amount can be checked in the table of the Luxembourg tax office.

2. Multiply the basic rate by the coefficient of the municipality

   You can check the table of approved coefficients, for Niederanven it is 225%. Since we need a coefficient and the table gives percentages, we divide 225 by 100 and get 2.25, which is the coefficient to be multiplied by the base rate of 3%. We get 6.75% (3 x 2.25).

3. Calculate the amount of the municipal tax

   To do this, we find 6.75% of the taxable income — 174,000. We get 11,745 euros: this is the amount of the municipal tax.

   Adding 27,927 euros and 11,745 euros, we get the total tax burden for income tax and council tax. 

Thus, the minimum amount of the two taxes in Niederanven is 39,672 euros per year on an income of 174,000 euros.

Note that the taxes included in the CIT are not all the taxes that companies have to pay in Luxembourg: there is also VAT, property tax, wealth tax and so on.

Before you can pay taxes in Luxembourg, you must register your business with the relevant authorities, which usually include the Administration de l'enregistrement, des domaines et de la TVA (AED) and the Registre de Commerce et des Sociétés (RCS). This is necessary to obtain an identification number, registration number and VAT number.

Usually, when starting a business, the documents are registered with all the necessary authorities by a notary. If, for any reason, the stage of registration with the tax authorities is missed, it must be corrected.

Although Luxembourg's tax system appears complex on the surface, the Grand Duchy offers deductions and incentives for businesses that can significantly reduce the tax burden.

Contrary to popular beliefs, Luxembourg has a great tax system. I personally call the Grand Duchy a country for those who “get it”.

Alex Pospekhov, founder of the “Mission space” start-up

Read interview

Which companies can expect to benefit from favorable tax regimes in Luxembourg?

Technology Companies with IP-Related Activities

Agricultural businesses

Shipping companies

Mutual funds

Venture Capital Funds

Private asset management companies

In addition, the Grand Duchy supports entrepreneurs financially, creates special tax optimization schemes and offers business incubators. To learn more about the support and benefits available, please consult our dedicated guide.

Support

Benefits

Luxembourg

How to get support and benefits for business in Luxembourg

In order to declare their income, entrepreneurs must file an electronic corporate income tax return through the MyGuichet.lu online data entry assistant. All companies excluded from the electronic procedure (partnerships, non-resident companies, agricultural associations, cooperatives) must file a paper declaration. Only the taxable income must be declared and the data sent to the ACD.

Taxable income is usually calculated by deducting deductible expenses from a company's gross income. Deductible expenses can include operating costs, wages, depreciation and other similar expenses associated with running a business.

In addition to the declaration, a so-called tax package, i.e. supporting accounting documents, is required. Depending on the activities of the company and the tax regime to which the company is subject, the list of documents may vary. In all cases, the minimum list of required documents must be submitted with the return.

Minimum set of documents to be submitted with the tax return

Check your packet of documents

Something is missing

*The mandatory items are marked with red asterisks.

Accounting balance sheet

Income statement

Table of fixed assets of the organization and their depreciation in the balance sheet

General expense report

Check your packet of documents

Something is missing

*The mandatory items are marked with red asterisks.

The ACD will review the return and supporting documentation and then determine the amount of tax due and the deadlines by which it must be paid.

The amount of the provisional contributions charged by the ACD will be calculated on the basis of the most recent tax receipts for the previous financial year, where available, and will then be adjusted automatically or at the request of the company.

It is important to maintain accurate reporting and file tax returns on time, otherwise you may be subject to significant fines and penalties for each day of delay. Therefore, entrepreneurs are advised not only to deal with tax issues on their own, but also to work with an accountant if this is not a mandatory requirement for the establishment of the company.