Luxembourg participation exemption regime
Treatment of income received by a Luxembourg share capital company
The Luxembourg Participation exemption regime provides for a very large exemption from income tax of the income derived from qualifying participations.
Who is entitled to the Participation exemption regime?
Answer...
- A fully taxable resident share capital company, such as a Soparfi incorporated under the form of a SA or a Sarl;
- A Luxembourg branch of a company covered by the EU Parent-Subsidiary directive and listed in appendix 1; Eur-Lex
- A Luxembourg branch of a company established in a country with which Luxembourg has concluded a double tax treaty;
Le Gouvernement du Grand Duché de Luxembourg
What is a qualifying participation/subsidiary?
Answer...
- A fully taxable share capital company resident in Luxembourg;
- A company listed in annex 1 of the EU Parent-Subsidiary directive;
- A fully taxable non resident share capital company which is subject to an income tax rate comparable to the Luxembourg corporate income tax rate – the Luxembourg tax authorities consider that an income tax rate of minimum 11% is a comparable income tax rate;
- If one of the above entities is held through a transparent vehicle it shall nevertheless be considered as a qualifying participation
Which types of income benefit from the exemption?
Answer...
Treatment of distribution made by a Luxembourg share capital company
What is a qualifying shareholder?
Answer...
- A fully taxable resident share capital company;
- A Luxembourg branch of a company covered by the EU Parent-Subsidiary directive and listed in annex to the Directive; Eur-Lex
- A Luxembourg branch of a company established in a country with which Luxembourg has concluded a double tax treaty;
Le Gouvernement du Grand Duché de Luxembourg
- A company listed in annex to the EU Parent-Subsidiary directive;
- A fully taxable non resident share capital company which is subject to an income tax rate comparable to the Luxembourg corporate income tax rate – the Luxembourg tax authorities consider that an income tax rate of minimum 11% is a comparable income tax rate;
- A Swiss resident share capital company which is subject to effective taxation in Switzerland.
Treatment of dividend:
If the Luxembourg participation is held for 12 months in total (see condition for dividend exemption to meet the 12-month criteria) and represents 10% of the share capital or has been acquired for a minimum of Eur 1’200’000, exemption from withholding tax may apply on dividend distribution. Otherwise a 15% WHT has to be levied unless a reduced WHT rate applies according to the applicable double tax treaty.
Treatment of liquidation surplus:
No WHT is levied on liquidation surplus regardless of the status and holding conditions of the Luxembourg company and the recipient (foreign shareholder).
Exemption from net wealth tax
For net wealth tax purposes, the value of the qualifying participations is generally excluded from the taxable basis. See attached spreadsheet.
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