Luxembourg is known for its stable economy, its high standard of living, and its tax system which is generally considered to be more favorable than that of many other countries in terms of both personal and corporate taxation.
If you are a Luxembourg tax resident and you have or plan to have investments in Luxembourg you must be aware of the country's tax obligations including Luxembourg’s capital gains tax as this type of tax can have a significant impact on your investment returns.
In this article, we will delve into the details of Luxembourg's capital gains tax, explaining what it is, who is subject to it, and how it is calculated. We will also discuss some important exemptions and deductions that investors can take advantage of to reduce their tax liability.
However, it's worth noting that the tax system can be complex, and individuals should seek professional advice to ensure they are meeting their tax obligations and maximizing their tax benefits.
Luxembourg has a capital gains tax that applies to individuals and companies when they sell at profit-certain types of assets, including shares, real estate, and other investments. The tax is calculated on the difference between the assets’ sale price and the original purchase price, but the tax rules are different whether it applies to individuals or companies.
The capital gains tax rate is progressive and depends on the total amount of profit and the type of asset sold.
We will examine the particularities of individuals and then we will look at how it works for companies.
The tax rate for an individual is progressive and depends on the amount of income ranging from 0% to 45.78% as you can see in the next chart. These rates are called the ordinary progressive rates and we will refer to them several times in this article.
|From EUR||To EUR||Tax rate (%)||Employment fund surcharge (%)||Effective tax rate (%)|
In addition, capital gains tax in Luxembourg not only depends on the taxable value, but the type of asset also sold, and the length of ownership will also affect the tax. The tax treatment of different types of assets differs depending on whether they are considered movable or immovable property.
In Luxembourg, capital gains from movable and immovable properties are subject to taxation. This refers to gains that are made from the sale or exchange of assets such as stocks, bonds, and other financial instruments.
It's important for taxpayers to be aware of the tax rules and regulations surrounding capital gains from movable properties in Luxembourg, as failing to report taxable gains can result in fines or penalties.
Gains from the sale of shares in a company are usually taxable in Luxembourg. Tax rates and rules for calculating taxable income depend on several factors, including the type of shares, the holding period, and the resident status of the seller.
If the capital gains realized from selling shares during a calendar year are below 500 euros, no tax is due.
Otherwise, you need to look at the holding period:
The tax rate is progressive according to the ordinary progressive rates previously presented.
In this case, for the shareholdings of less than 10 % of a company's share capital there won’t be any taxes, otherwise, capital gains are taxed as extraordinary income at half of the maximum global rate (22.89%) with 50,000 euros allowance (doubled for spouses/civil partners filing jointly).
Additionally, all income from capital gains is also subject to a 1.4 % long-term care insurance contribution.
If you are a non-resident, your capital gains are taxable only in your residence country but, capital gains on the disposal of a significant shareholding in a Luxembourg company are taxable in Luxembourg (under certain conditions) unless Luxembourg has entered into a double taxation avoidance agreement with your residence country.
The following chart summarizes the previous information and you can get more detailed information in the Guichet.lu dedicated page.
|Short-term shareholding (less than 6 months)||Long-term shareholding (more than 6 months)|
|Minority shareholding (less than 10%)||Taxation at progressive rates||Exemption|
|Majority shareholding (more than 10%)||Taxation at progressive rates||Taxation at half of the overall maximum rate and EUR 50,000 allowance (doubled for spouses/civil partners filing jointly)|
Art and collectibles are also considered movable assets, so taxes are calculated in a similar way as for shares or other valuable assets. If the ownership period is less than 6 months the ordinary progressive rates are applied, otherwise, capital gains are tax-exempted.
Capital gains realized upon the sale of a piece of art in the scope of individual business activity should be considered as part of the business income and therefore taxed at the normal tax rate (i.e. up to 45.78%).
There are some exceptions to the tax, however. For example, art and collectibles that are owned and displayed by public institutions such as museums are exempt from the tax. Additionally, art and collectibles owned and displayed by non-profit cultural organizations may be exempt from the tax if certain conditions are met.
As with shares, gains from the sale of real estate are taxable in Luxembourg, and the tax rate and rules for calculating taxable gains depend on several factors, including the nature of the property (primary or secondary residence), the period of ownership and the seller's residency status.
When selling a real estate property, it is important to determine whether the property was your principal residence. If so, no tax will be applicable.
Otherwise, the tax liability will depend on the duration of ownership, more precisely, you must determine if the sale of real estate takes place less or more than 2 years after its acquisition.
The income earned is called “speculation profit” and is taxed at ordinary progressive rates.
The income earned is called a “capital gain on the sale” and is taxed at a maximum of 21% (half of the global rate).
Following the sale of a property, any income you have received from capital gains can benefit from a ten-year reduction of up to 50,000 euros (or 100,000 euros for jointly taxed spouses or partners). However, the amount of the reduction is reduced by any allowances you have already received during the ten-year period in which they possessed the property.
Finally, income from the sale of real estate is also subject to long-term care insurance. The Luxembourg Inland Revenue, one of the three main tax authorities in Luxembourg, calculates the contribution due based on a case.
These rules apply to both Luxembourg residents and non-residents selling property in Luxembourg.
It’s important to note that speculation gains generated from building sales located abroad are tax-exempt.
Taxing cryptocurrencies is complicated, they are a relatively new technology, and tax authorities are still working to understand how they function and how they should be classified for tax purposes.
The taxation procedure for income from the sale of cryptocurrencies in Luxembourg is still unclear since the tax authorities do not give specific instructions.
Therefore, the cryptocurrency ecosystem tends to apply already existing rules to this new type of asset, the problem is to determine the category of income that corresponds to the gains realized in this field.
We may think that cryptocurrency gains are capital gains in Luxembourg but that is not necessarily the case, the most expanded point of view establishes that income from cryptocurrency sales depends on how the investor is categorized according to three possibilities: investors, speculators, and miners.
They would be viewed and taxed as traders. In general, their activity is carried out through a company, and their profits are taxed at 22% to 25%.
On the other hand, would be tax-exempted because in this case income will be viewed as miscellaneous income, and article 99bis of the income tax law provides that only speculative profits are taxable. The point here is that to be considered an investor it’s necessary to keep the cryptos for at least 6 months.
In any case, all this is still unclear and complicated because of the nature of cryptocurrencies. There are many subtilities, for example, when buying recurrently at different times and selling parts of the portfolio all that mixed with staking income and income gained in different ways through decentralized finance protocols.
We present a general overview of income taxes in this field but it is highly recommended to get professional advice on this matter.
Luxembourg remains one of the most attractive European countries for business investment, largely due to its corporate tax regulations, which are characterized by low taxation.
A peculiarity of Luxembourg's corporate income tax is that all the company's revenues are considered commercial and not separated by categories.
All revenues receive the same tax treatment, regardless of their nature or origin. So capital gains in Luxembourg are mixed with all the other types of income the company has had.
With this in mind, the next step is to determine the tax rate, which depends on the taxable income base:
The applicable rate is 15%.
The applicable rate ranges from 15 to 17%.
The applicable rate is 17%.
In addition to that, all legal entities based in Luxembourg must pay an amount equal to 7% of their corporate income tax as a contribution to the employment fund. In other words, a company subject to a tax rate of 17% pays an additional 1.19% surcharge to this fund. This means that if a company is subject to a 17% tax rate, it will pay an additional 1.19% (17 * 0.07) surcharge to this fund.
Finally, there is the municipal business tax or MBT. In the case of the city of Luxembourg, the tax rate is 6.75%.
These are the basics but there are many exemptions and special cases, for example, the sale of shares of a subsidiary may be exempt from capital gains tax in Luxembourg if the following three conditions are met:
It is important to remember that Luxembourg has several tax treaties with other countries, which may affect the tax treatment of capital gains for individuals and companies. These agreements grant relief from double taxation and affect the tax liability of taxpayers with cross-border investments or activities.
There are several classes who qualify for tax exemption.
Luxembourg has 8 categories of income taxable for personal income tax purposes and any income that does not fall into one of those categories is not taxable, that’s the case of lottery winnings.
Certain gifts made by the employer to an employee are generally considered to be taxable income. This includes gifts given on occasions such as Christmas or work anniversaries, as well as non-monetary benefits such as company cars or housing allowances.
However, there are some exceptions to this rule. For example, gifts of low value, such as a small token of appreciation and gifts given in recognition of exceptional work or achievement may be exempt from taxation, as long as they are not given on a regular basis.
It's important to note that there are many different factors that can affect whether or not a redundancy payment is tax-exempt in Luxembourg. For example, the amount of the payment, the reason for the redundancy, and the length of time the employee worked for the company.
Additionally, there are certain rules and regulations that must be followed in order to qualify for the tax exemption. For example, the redundancy must be genuine, and the payment must be made as compensation for the loss of the employee's job. If the payment is made as part of a voluntary departure scheme or as a result of a mutual agreement between the employee and the employer, it may not be tax-exempt.
To get more information about the specific circumstances under which redundancy payments are tax-exempt in Luxembourg, it's a good idea to consult the Guichet.lu page about this topic.
Capital gains tax is a tax on the profits earned from the sale of an asset. In Luxembourg, capital gains tax is applied to the sale of movable property such as shares, as well as immovable property, such as real estate. The amount of tax paid on capital gains in Luxembourg depends on various factors, including the type of asset, the holding period, and the total amount of capital gains realized in a calendar year.
Capital gains derived from the sale of movable properties in Luxembourg are subject to progressive income tax rates ranging from 0% to 45.78%. However, this tax is only applicable if the holding period is less than six months, and the total capital gains exceed €500. If you hold the movable property for more than six months, it is considered a long-term capital gain, and it is not subject to tax in Luxembourg.
In Luxembourg, capital gains tax on the sale of real estate properties depends on several factors, including the holding period and whether the property was used as a primary residence. If the property was used as a primary residence, there may be no taxation on the capital gains. However, if the property was not a primary residence, the taxation will depend on the period during which the owner held the property.
Cryptocurrencies are a relatively new technology, and tax authorities are still working to understand how they function and how they should be classified for tax purposes. The taxation procedure for income from the sale of cryptocurrencies in Luxembourg is still unclear since the tax authorities do not give specific instructions.