Country profile

Doing business
in Luxembourg
May 2022
LUXEMBOURG
 Country summary 4

Legal structures 8
Company formation

Incorporation procedures 10

Ongoing obligations 12
Contents

Tax implications 14

Labour environment 23

Compliance requirements 27
4

Country summary
Country summary

Luxembourg, officially known as the Grand

Duchy of Luxembourg, is a landlocked
country in Western Europe, sharing its
borders with Germany, Belgium and France.
It has a population of 634,730 with around an
extra 210,000 employees from the bordering
countries. The country’s key industries include
finance, contributing 13% to the national GDP,
transport and communications. Luxembourg
is a member of the European Union (EU), the
United Nations Organisation (UNO), the North
Atlantic Treaty Organisation (NATO), the Euro-
Atlantic Partnership Council, the Organisation
for Security and Cooperation in Europe
(OSCE), and the Organisation for Economic
Cooperation and Development (OECD).

1.1 Legal structures
• The Public and Private Limited Company are the
most widely used forms of business representation
in Luxembourg. Foreign companies can also set up a
subsidiary or branch in the country. They must register
with the Trade and Companies Register (Registre de
Commerce et des Sociétés de Luxembourg).
notarised deed or by private deed, in the latter case, in
compliance with Article 1325 of the Luxembourg Civil
Code.
• Excerpts of the deed establishing a General Partnership
(SNC), a Common Limited Partnership (SCS) or a
Special Limited Partnership (SCSp) must be published
with the Trade and Companies Register.

1.2 Incorporation procedures • The deed establishing a Public Limited Liability

• Companies taking the form of a Private Limited Liability
company (S.à r.l.), Public Limited Liability Company
(SA), Corporate Partnership Limited by Shares (SCA) or
the Simplified Public Limited Liability Company (SAS)
shall be incorporated under a special notarised deed.
• Companies taking the form of a General Partnership
(SNC), Common Limited Partnership (SCS), Co-
operative Company (S.C) and Special Limited
Partnership (SCSp) can be incorporated by special
Company, a Private Limited Liability Company, a
Corporate Partnership Limited by Shares and a
Simplified Public Company is published in its entirety.
All commercial companies must register themselves
with the Luxembourg Trade and Companies Register.
1.3 Ongoing obligations
• The directors/managers of a company are required
to prepare annual accounts in accordance with a
regulatory accounting framework.

• The Grand-Ducal regulation has specified the content
and the presentation of a standardised chart of
accounts.
• Unless exempted, entities are subject to audit by an
auditor depending on its legal form, size criteria (“Audit
thresholds” – balance sheet size, turnover size, average
number of employees), regulation by local authorities
or contractual obligations, as further detailed in Section
4.2.
• Groups in Luxembourg are required to prepare
consolidated annual accounts, including the
Luxembourg parent company and all of its subsidiary
undertakings, with possible exemptions as specified
in Luxembourg law. Consolidated accounts must be
audited by a Luxembourg statutory auditor.
• All companies, except individual businesses and
small partnerships, must file their approved annual
accounts electronically with the Luxembourg Trade
and Companies Register. Regulatory requirements
are applicable for regulated vehicles, such as
(regulated) securitisation vehicles, SICARs (Risk
Capital Companies) and SIFs (Specialised Investment
Funds), as well as for Management Companies such
as AIFMs (Alternative Investment Fund Managers) and
Management Companies (ManCos).
1.4 Tax implications*
• VAT: 17.0%
• Corporate Income Tax: 24.94%.
• There is also a net wealth tax.
Refers to general tax rates. Applicable rates may vary.
* transactions.
1.5 Labour environment
• Foreign nationals, who do not belong to the European
Economic Area (EEA) or Switzerland, are required to
hold a valid residence permit, which includes a work
permit and a sojourn (temporary stay) permit, to live
and work in Luxembourg.
• Employment contracts in Luxembourg may be fixed
term or a permanent contract.
• There are 11 public holidays in a calendar year in
Luxembourg.
1.6 Compliance requirements
• Luxembourg signed an Intergovernmental Agreement
(IGA) Model 1 with the United States on 28 March 2014
under the terms of which FATCA (Foreign Account Tax
Compliance Act) will be applied in Luxembourg. The
IGA was ratified on 24 July 2015 by the Luxembourg
Parliament.
• On 18 December 2015, the Luxembourg Law on the
automatic exchange of financial account information in
5
the field of taxation, implementing the OECD’s Common
Reporting Standard (CRS), was enacted.
• On 13 February 2018, the Luxembourg Parliament
adopted bill no 71281, which implements most of
the provisions of the Directive (EU) 2015/849, the
fourth anti-money laundering directive (AMLD IV), into
Luxembourg law.
• On 18 December 2018 bill no 7217 concerning the
setting up of a public register of beneficial owners for
Luxembourg companies, a still outstanding provision
of the AMLD IV, was passed in parliament. The law was
published in the Luxembourg Official Gazette on 15
January 2019 and came into force on 1 March 2019.
• While at the time of publishing this country profile
there is no bill in parliament, EU directive 2018/822
amending directive 2011/16/EU, provides the provision
for all EU Member States to implement the Mandatory
Disclosure Rules into local law. The MDR is concerned
with reporting to the national authorities on certain
cross-border arrangements creating tax benefits or
impacting the Common Reporting Standard (CRS) or
the identification of Beneficial Owners (BO).
• Transfer pricing (TP) rules are applicable in
Luxembourg. Article 56 of the Luxembourg Income Tax
Law (LITL), entitled the “Arm’s length principle”, states
that profits of enterprises that are linked by conditions
that differ from those between independent enterprises,
shall be determined in accordance with the conditions
that prevail between independent enterprises and are
taxed accordingly. This can refer to the interest rate
applied on intra-group loans, guarantee fees between
related parties and any other type of inter-company
• Also, as per the transfer pricing Administrative Circular
LIR 56 – 56bis/1 of 27 December 2016, any company
performing intra-group intermediary financing activity
should retain an arm’s length margin and prepare a
transfer pricing report in cases where the company
does not opt for the simplification measure (application
of a 200bps margin after tax). The content of the TP
report is aligned on the local file requirements depicted
in the 2017 version of the OECD TP Guidelines.
• Luxembourg also implemented its country-by-country
Reporting (CbCR) obligation under the law of 26
December 2016. Any Luxembourg resident entity falls
within the scope of the Luxembourg CbCR requirements
if it forms part, together with non-Luxembourg entities,
of a multinational enterprise group (MNE Group) and
prepares consolidated financial statements with a
consolidated annual group turnover of at least €750
million. If so, the reporting entity must be determined
and a notification requirement applies in Luxembourg
for the LuxCo(s) concerned.
6

Country factsheet

GDP Country capital

US$73.35 billion Grand Duchy of Luxembourg
(World Bank, 2020)

Key government departments

Currency Department of Finance
Euro Department of Foreign Affairs and Trade
(Sign: €; Code: EUR) Department of Economic and Social
Affairs
Government of the Grand Duchy of
Luxembourg
Language
Luxembourgish, French, German

Key cities
Luxembourg, Esch-sur-Alzette,
GNI per capita
Differdange, Dudelange, Schifflange,
US$80,860
Bettembourg, Pétange, Ettelbruck,
(World Bank, Atlas method, 2020)
Diekirch

Population
634,730 Key sectors
(Institut national de la statistique et Finance, transport and communications
des études économiques, Luxembourg
(STATEC), 2021)
7
8
Legal structures – Company formation
Foreign investors can choose from the following types of
business representations in Luxembourg:
Public Limited Liability Company (Société Anonyme, SA)
SA is the preferred company structure for large businesses.
At least one shareholder – which may be an individual
or a legal entity – and a resident or a non-resident with a
minimum capital of €30,000 (commonly used share capital
is €31,000) is required for incorporation. At least 25% of the
nominal value of each share must be paid at the time of
incorporation.
Private Limited Liability Company (Société à
Responsabilité Limitée, S.à r.l.)
S.à r.l. is the most frequently used vehicle for mid-sized
businesses and financial holding companies, also in the
context of alternative investment funds. An S.à r.l. can
have between two and 100 partners. There is also a “single
member” S.à r.l., which is an exception to the traditional
concept of company law, allowing a single partner to set
up an S.à r.l. The minimum capital required at the time of
incorporation is €12,000, which must be fully subscribed and
paid up.
Simplified Public Limited Liability Company (Société par
actions simplifiée, SAS)
The minimum subscribed share capital for an SAS is
€30,000, of which at least a quarter must be fully paid up on
the date of incorporation.
Cooperative Company (Société Coopérative, SC)
A SC structure offers the flexibility of variable capital.
Members’ shares cannot be transferred to third parties.
There are no minimum or maximum capital requirements.
European Company (Société Européenne, SE)
An SE is a form of business representation governed by EU
laws. A European company can carry out its activities across
the EU through its branches, and need not set up local
subsidiaries in each country of operation. A minimum capital
of €120,000 is required at the time of incorporation.
Common Limited Partnership (Société en Commandite
Simple, SECS or SCS)
A limited partnership requires at least two partners – a
general partner and a limited partner. The general partner
has unlimited liability, while the limited partner is only liable
up to the limit of his/her contribution. There is no minimum
capital requirement. A Common Limited Partnership is
sometimes used for funds investing in private equity and
venture capital.
Partnership limited by shares (Société en Commandite par
Actions, SECA or SCA):
An SCA combines the characteristics of an SECS and an
SA. At least two partners – one or more general partners
and one or more limited partners – are required. A minimum
share capital of €30,000 is needed, must be fully subscribed
and paid up to the level of at least 25% on the date of
formation. It used to be the preferred vehicle for private
equity and venture capital funds, but is still regularly used.
The capital is made up of shares. It must be fully subscribed
and paid up to at least 25% on the date on which the SCA is
formed.
Cash contributions or contributions in kind are permitted.
Special limited partnership (Société en commandite
speciale, SCSp)
An SCSp is a special entity that can own its own assets
and act in justice in its name and does not dispose of a
legal personality. It is constituted by at least one general
partner and at least one limited partner. There are no
legal requirements with respect to the minimum capital
of the partnership. The partnership can be structured to
operate with a fixed or a variable capital. The Luxembourg
SCSp has no claw-back risk in case of insolvency after
a profit distribution (except in the case of fraud), which
means that creditors cannot force the limited partner(s)
to repay interests or dividends they have received in cases
where these were not paid out of the real profits of the
partnership. Nowadays the preferred vehicles for private
equity and venture capital investments, it also has the
highest structuring flexibility and the freedom to apply other
accounting frameworks, more so than LuxGAAP and IFRS,
as adopted by the EU.
General Partnership (société en nom collectif, SNC)
A partnership in this form is a commercial company
characterised by the unlimited joint liability of the partners
for all obligations of the company. With a minimum of two
partners, the company name must include the name of at
least one of the partners. The partners are considered to be
trading in their own name.
 9

Foreign companies can also set up a subsidiary or branches

in Luxembourg.

• Overseas companies can establish a presence in

Luxembourg by appointing a local agent, a distributor
or a franchisee. Depending on the type and size of
commercial activity they wish to establish on the
territory, foreign companies may prefer to set up a
subsidiary or a local branch.

• For financial activities (such as investment, holding of

participating interest or real estate acquisition in other
countries), foreign investors will generally establish a
Luxembourg special purpose vehicle (SPV) in the form
of a limited liability company (SA, SCA or S.à r.l.) or a
partnership (SCS or SCSp).

• Branches of foreign companies must register with the

Trade and Companies Register. Branches are taxed on
the income generated in Luxembourg. The head office is
responsible for all the liabilities of a branch.
On 13 July 2016, the Luxembourg Parliament adopted bill no
5730 (the Reform Bill), which amended and modernised the
Luxembourg Companies Act dated 10 August 1915 and:

• Simplified incorporation formalities

• Recognised “sweat” contributions (apports en industrie)

in the S.à r.l.

• Modernised the S.à r.l.

• Provided a more sophisticated and secure framework

for shareholder agreements

• Structured voting rights

• Introduced Lock-Up clauses (clause d’inaliénabilité) and

Approval Clauses (clause d’agrément) in the SA

• Supported the validity of Put Options

• Modernised the corporate governance rules

• Strengthened minority shareholder rights

• Introduced flexibility and legal certainty regarding

general shareholders’ meetings

• Introduced of a new regime for company conversions

• Acknowledged the validity of a “simplified liquidation”

procedure

• Introduced the SAS (société par actions simplifiée).

10

Incorporation procedures

Luxembourg ranked 65th for the complexity of its

business environment according to TMF Group’s 2021
‘Global Business Complexity Index’.

Incorporation Procedure for Establishing a Corporation (SA) in Luxembourg

S. No Procedure Time to complete Associated costs*

Depositing the minimum capital requirement

1 1 day No charge
Agency: Commercial Bank

Verifying the uniqueness of the company’s name Time spent + €4.75 – €10
Less than 1 day
2 with the Trade and Companies Register Trade and Companies
(online procedure)
Agency: Trade and Companies Registrar Register fees

Drafting and notarising the company deed through a

€1,050 + €75 fixed regis-
3 public notary 2 days
tration fee + notary fees
Agency: Notary

Applying for a business licence to the Ministry of

Economy and Foreign Trade (if needed) 15 days (simultaneous with
4 Time spent
Agency: General Directorate for Small and Medi- procedure 3)
um-Sized Businesses - Ministry of Economy

Registration of the company with the Trade and

Companies Register; receipt of the official (register)
number, the tax number, the VAT number, and 4 days (simultaneous with
5 Included in procedure 3
the social security pay-as-you earn and employer procedure 4)
numbers
Agency: One stop shop register

*Any quoted charge is accurate at the time of publishing, and an estimate of cost incurred when undertaking work yourself without third party
support.

It’s important to note that separate, additional procedures to register for a VAT number and the social security pay-as-
you earn and employer numbers, if necessary, are applicable and not included in the basic incorporation procedure in
Luxembourg.

3.1 Management/Personnel
• The Act of 25 August 2006 made it possible for public
limited-liability companies to opt for a two-tier board
structure. However, the one-tier board structure remains
by far the preferred option in Luxembourg.
◦ One-tier system: Directors are appointed by the
general meeting of shareholders, for a term set by
the general meeting of up to six years (this limitation
only applies to SAs). Directors can be re-elected
and removed from office at any time by the general
meeting.
◦ Two-tier system: The company is managed by two
bodies; a management board, entrusted with day-to-
day management of the company, and a supervisory
board.
• An SA may be governed either by one director, a board
of directors or by a two-bodied system comprising a
management board and a supervisory board. There’s no
restriction on their nationality.
◦ A board of directors must have at least three
members (or one in the case of a sole shareholder),
which may be individuals or legal entities, and can be
appointed for a maximum term of six years.
◦ The number of the members of the management
board is determined by the articles of association or,
failing this, by the supervisory board. Its members are
appointed by the supervisory board or by the general
meeting of shareholders if the articles of association
foresee a maximum term of six years.
◦ Where a legal entity is appointed as a member of the
board of directors, of the management board or of
the supervisory board, it shall designate a permanent
representative to exercise that duty in the name and
on behalf of the legal entity.
◦ The supervisory board is composed of at least three
members (or one in the case of a sole shareholder)
which are appointed by the general meeting of
11
shareholders. There is no minimum requirement for
the supervisory board.
• A S.à r.l. is governed by one or more managers, which
may be individuals or legal entities, and may or may not
be partners. Managers are appointed for a limited or
unlimited term through the articles of association or by
the partners. There is no restriction on the nationality
of managers. However, civil servants, members of the
court, lawyers, notaries and members of parliament,
government and military cannot be managers of S.à
r.l.s.
• An SAS can be managed by a single president and must
appoint a statutory auditor.
• In practice, having at least half of the board members
as local residents is strongly suggested for corporate
governance purposes.
• Recruitment: Mandates need not be remunerated;
employers can either recruit directly or through
specialised recruitment agencies.
• In cases where the company is performing an
intra-group intermediation activity, the Luxembourg
Transfer Pricing Circular includes additional substance
requirements:
◦ Capital requirements
◦ A majority of managers/directors either resident
in Luxembourg or non-residents carrying out a
professional activity and taxable in Luxembourg of at
least 50% of their aggregate income
◦ Existence of qualified personnel
◦ Key decisions taken in Luxembourg
◦ Office space
◦ The company must not be considered tax resident in
another state.
12
Ongoing obligations
4.1 Frequency of board/shareholder meetings
• A S.à r.l. with more than 60 members is required to hold
at least one general meeting (ordinary or extraordinary)
of shareholders in a year, at a time specified in the
articles of association. The manager is required to
provide at least eight days’ notice to the members prior
to the meeting.
• Meetings of shareholders of an SA are classified as
ordinary and extraordinary meetings. An annual general
shareholders’ meeting must be held at least once a year
to review the annual accounts, directors’ report and
auditors’ report at the date specified in the SA’s articles
of association, but no later than six months after the
end of a financial year.
• Other ordinary shareholders’ meetings can be held any
time to dismiss or renew mandates of directors and/
or auditors; to approve a corporate action; or to decide
on the distribution of an interim dividend. Ordinary
shareholders’ meetings may be called by the directors
or the supervisory board in the case of an SA. The
directors are obliged to convene the general meeting
upon request, from shareholders representing 10% or
more of the company capital.
• Shareholders must be notified at least eight days before
an ordinary shareholders’ meeting.
• Extraordinary shareholders’ meetings can be called at
any time to take a decision which involves amendments
to the articles of association or other decisions to be
taken in front of a notary.
4.2 Audit requirements
• Companies incorporated under Luxembourg law
generally must have their annual accounts audited by
one or more approved statutory auditors (Luxembourg
“Réviseur d’Entreprise Agréé”) appointed by the general
meeting of shareholders/unitholders from the members
of the Institut des Réviseurs d’Entreprises (IRE), unless
they are exempted.
• Small sized companies are generally exempted from
an audit if the company does not exceed two of the
following three size criteria for two consecutive financial
years (“Audit thresholds”):
◦ Total assets are equal to or exceed €4.4 million;
◦ Net turnover is equal to or exceeds €8.8 million;
◦ Average number of full-time employees is equal to or
exceeds 50.
• For an SA that does not fulfil the above size criteria
conditions, supervision is nevertheless mandatory
by one or more supervisory auditors (Luxembourg
Commissaires aux Comptes), whether they are
shareholders or not.
• If an SA voluntarily appoints an approved statutory
auditor while not meeting the above conditions, both
the supervisory auditor and the approved statutory
auditor need to provide their report unless the approved
statutory auditor is officially appointed to replace the
supervisory auditor.
• S.à r.l.s with more than 60 members are subject to
mandatory supervision by one or more supervisory
auditors, partners or otherwise, appointed in the articles
of association. The legal audit of annual accounts by
an approved statutory auditor is mandatory in each
company which, on the balance sheet date after two
consecutive financial years, exceeds two of the three
Audit thresholds size criteria.
• SCAs are subject to mandatory review by a supervisory
board of at least three supervisory auditors. The
supervisory board also issues recommendations on
questions submitted by the manager and authorises
actions that surpass the manager’s remit.
• However, companies subject to the supervision of
the Commission de Surveillance du Secteur Financier
(“CSSF”) or Commissariat aux Assurances (“CAA”) must
have their annual accounts audited whatever the size
and the legal form of the company.
• A société en nom collectif (General corporate
partnership/ unlimited company) and a société
cooperative (Co-operative company) are exempted
from the obligation to have their annual accounts
audited, whatever the size of the company, unless
they are subject to supervision of the CSSF or CAA.
No audit is required for SCSp, unless disclosed in the
partnership agreement or otherwise contractually.
Entities exempted from audit can be nevertheless
subject to audits, depending on requirements triggered
by contractual obligations, such as – but not limited
to – shareholders’ agreements or further financing
agreements.
• The audit of annual accounts are conducted by
statutory auditors, in accordance with International
Standards on Auditing (“ISA”) as adopted for
Luxembourg by the CSSF.
 13

4.3 Filing requirements

• Financial statements – including balance sheet,

profit and loss statement and explanatory notes –
must be drafted in accordance with the Luxembourg
GAAP (Generally Accepted Accounting Principles),
Luxembourg GAAP with a fair value option or IFRS
(International Financial Reporting Standards). An SA
and an S.à r.l. must file the following reports with the
Trade and Companies Register within seven months of
the end of their financial year (six months to hold the
meeting plus one month as from the meeting):

◦ SA: annual financial accounts, management report,

auditor’s report and profit allocation

◦ S.à r.l.: annual financial accounts and management

report, auditor’s report (when applicable), annexes
and, in principle, a management report, which must
be approved by the partners’ meeting.

• The management report is not obligatory in small size

companies, but is nevertheless recommended as a
sign of proper corporate governance. Companies with
shares listed on an EU-regulated market also need to
prepare a corporate governance statement.

• An SA and an S.à r.l. may draft an abbreviated balance

sheet if they do not exceed any two of the following
three conditions on the balance sheet date:

◦ Total assets of €4.4 million

◦ Net turnover of €8.8 million

◦ 50 employees on average.

• An SA and an S.à r.l. may also combine some headings

in the profit and loss statement if they do not exceed
any two of the following three criteria on the balance
sheet date:

◦ Total assets of €20 million

◦ Net turnover of €40 million

◦ 250 employees on average.

• All companies, except individual businesses and small

partnerships, file accounts electronically on the eRCS
platform. All companies, except for regulated vehicles
and companies preparing accounts under IFRS, must
electronically file their trial balance, balance sheet and
profit and loss statement in the prescribed standard
Luxembourg format via the securitised eCDF platform.

4.4 FAIA
• In the scope of a VAT audit, the Luxembourg VAT
authorities may request all available information relating
to bookkeeping and other relevant company information
in an electronic XML file of a prescribed format called
the FAIA (Fichier Audit Informatisé de l’Administration
de l’Enregistrement et des Domaines) file.
14
Tax implications
5.1 Sales tax and VAT
• VAT is levied on the supply of goods and services in
Luxembourg. The standard VAT rate is 17%.
◦ A 14% VAT intermediary rate is applicable for
management and the safekeeping of securities, the
sale of wine and printed advertising materials, for
example.
◦ An 8% reduced VAT rate is applicable for electricity
and gas.
◦ A 3% super-reduced VAT rate applies to the sale of
books, water, pharmaceuticals, food products and
radio and television broadcasting services.
◦ Certain services are exempt, for example financial,
health and medical services and the leasing of
immovable property.
5.2 Withholding tax
• Dividends: dividends are subject to a 15% withholding
tax unless reduced by domestic law, tax treaty or EU
directive provisions.
• Interest: Luxembourg does not levy a withholding tax on
interest. Profit-sharing bonds and debt instruments with
remuneration linked to the issuer’s profits are subject to
a 15% withholding tax unless reduced by domestic law,
tax treaty or EU directive provisions.
• Royalties: Luxembourg does not levy a withholding tax
on royalties.
• Technical service fees: Luxembourg does not levy a
withholding tax on technical service fees.
• Branch remittance tax: Luxembourg does not levy a
withholding tax on branch profits.
• Wage tax: there is no payroll tax levied in Luxembourg,
but there is a wage tax which is dependent on many
different criteria.
• Director’s fees: Director’s fees paid to board members
not involved in day-to-day management are subject to a
20% withholding tax.
5.3 Corporate income tax and municipal business tax
• Luxembourg’s Corporate Income Tax rate of 18.19%
applies to a company whose taxable income exceeds
€200,001 (including a solidarity surtax of 1.19%). The
rate is 15% if annual taxable income does not exceed
€175,000. A business with a taxable income between
€175,000-€200,001 is subject to a tax computed as:
€26,250 plus 31% tax base above €175,000.
◦ Municipal Business Tax, depending on the
municipality in which the undertaking is located,
is levied at tax rates between 6% and 10.5% (for
Luxembourg City, the rate is 6.75%).
◦ The effective combined CIT rate for Luxembourg city
is 24.94% (17% + 1.19%+ 6.75%).
• Corporate entities are also subject to a Net Wealth
Tax, which is a state tax levied on the net wealth of
companies.
◦ Luxembourg collective companies that own
qualifying holding and financing assets exceeding
both 90% of their total balance sheet and the amount
of €350,000 are subject to minimum net worth tax
of €4,815. Where the total balance sheet does not
exceed €350,000, the minimum net worth tax is
€535.
◦ Other Luxembourg companies are subject to a
progressive minimum net worth tax, depending on
the total balance sheet asset value. The tax ranges
from €535 (for a total balance sheet up to €350,000)
to €32,100 (for a total balance sheet exceeding
€30m).
• Reverse hybrid rules, as from the 2022 tax year:
◦ With effect from the 2022 tax year (starting 1
January 2022), Luxembourg transparent partnerships
will become liable to corporate income tax in relation
to net income to the extent that such income is not
otherwise taxed under the Luxembourg domestic tax
law or the laws of any other jurisdiction, provided one
or more associated non-resident entities:
► holding in aggregate a direct or indirect interest in
50% or more of the voting rights, capital interests
or rights to a share of profit in the Luxembourg
partnership,
► consider the Luxembourg partnership to be a
taxable person.
◦ Also, in such situations, while the Luxembourg
partnership will be considered a tax resident for
corporate income tax purposes, it will be exempted
from the Net Wealth Tax.
◦ The Reverse Hybrid Entity Rule does not apply to
Luxembourg entities that are collective investment
vehicles. A collective investment vehicle means an
investment fund or vehicle that is widely held, holds
a diversified portfolio of securities and is subject to
investor-protection regulation in the country in which
it is established.
 15

5.4 Double tax treaties

Luxembourg has entered into a large number of bilateral tax treaties:

• 85 in force
• 13 pending.

DOUBLE TAX TREATIES DOUBLE TAX TREATIES

ENTERED INTO EFFECT ENTERED INTO EFFECT
IN FORCE IN FORCE

Germany 1957 Switzerland 1996

Austria 1961 Indonesia 1996

United Kingdom 1968 China 1996

The Netherlands 1978

Greece 1996

Ireland 1979
Malta 1996

Italy 1980
Mauritius 1996

Denmark 1981
Romania 1996

Finland 1984
Singapore 1997

Brazil 1984
Vietnam 1998

Morocco 1986
Poland 1999

South Korea 1988

Russia 2000

Norway 1990
Thailand 2001

Spain 1993
Tunisia 2001

Hungary 1993
Canada 2001

Czech Republic 1993

Portugal 2001

Japan 1994
South Africa 2001

Slovakia 1994
United States of America 2002

Bulgaria 1995 Uzbekistan 2002

16

DOUBLE TAX TREATIES DOUBLE TAX TREATIES

ENTERED INTO EFFECT ENTERED INTO EFFECT
IN FORCE IN FORCE

Iceland 2003 Armenia 2011

Mexico 2004
Bahrain 2011

Slovenia 2004
Liechtenstein 2011

Israel 2004
Monaco 2011

Mongolia 2005
Qatar 2011

Trinidad and Tobago 2004

Barbados 2012

Belgium 2005
Panama 2012

Malaysia 2005
Kazakhstan 2014

Turkey 2006
Macedonia 2014

Latvia 2007
Tajikistan 2014

Lithuania 2007
The Seychelles 2014

San Marino 2007

Guernsey 2015

Estonia 2008
Isle of Man 2015

Hong Kong 2008

Jersey 2015

Azerbaijan 2010
Laos 2015

Georgia 2010
Saudi Arabia 2015

India 2010
Sri Lanka 2015

Moldova 2010 Taiwan 2015

Sweden 2010 Uruguay 2015

United Arab Emirates 2010 Croatia 2017

 17

DOUBLE TAX TREATIES

ENTERED INTO EFFECT
IN FORCE

Serbia 2017

Andorra 2017

Kosovo 2020

Ukraine 2018

Uruguay 2018

2018 (Came into force

on 8 June 2018 and
Cyprus
was applicable from 1
January 2019)

2018 (Came into force

on 14 June 2018 and
Senegal
was applicable from 1
January 2019)

March 2018 (Signed a

new treaty to replace the
France
double tax treaty that was
signed on 1 April 1958)

Brunei 2018

In force as of 6 July 2021

(Memorial A 513, 9 July
Botswana
2021. Signed on 19 Sep-
tember 2018)
18

PENDING DOUBLE TAX TREATIES STATUS

Albania Signed on 14 January 2009

Argentina Law of 14 July 2005, signed on 13 April 2019

Botswana Signed on 19 September 2018

Egypt Negotiations taking place

Kirghizia Initialled on 2 December 2008

Kuwait Signed on 11 December 2007 and amendment signed on 25 March 2021

New Zealand Negotiations taking place

Oman Initialled on 8 February 2011

Pakistan Negotiations taking place

Ghana Signed on 28 March 2019

Chile Negotiations taking place

Ethiopia Signed on 29 June 2021

Rwanda Signed on 29 September 2021

Mali Negotiations taking place

Grand Duchy Signed on 13 January 2022

Cape Verde Signed on 13 January 2022

Colombia Signed on 10 February 2022

 19

5.5 Free Trade Agreements (FTAs)

Luxembourg is a member of the EU and hence has following free trade agreements (FTAs) in place:

ENTERED INTO
FTAs
EFFECT

European Free Trade Association (EFTA) May 1960

EU – Overseas Countries and Territories (OCT) January 1971

EU – Switzerland – Liechtenstein January 1973

EU – Iceland April 1973

EU – Norway July 1973

EU – Syria July 1977

EU – Faroe Islands January 1997

EU – Palestinian Authority July 1997

EU – Tunisia March 1998

EU – South Africa January 2000

EU – Morocco March 2000

EU – Israel June 2000

EU – Mexico July 2000

EU – The former Yugoslav Republic of Macedonia June 2001

EU – Jordan May 2002

EU – Chile February 2003

20

ENTERED INTO
FTAs
EFFECT

EU – Lebanon March 2003

EU – Egypt June 2004

September
EU – Algeria
2005

EU – Albania December 2006

EU – Montenegro January 2008

EU – Bosnia and Herzegovina July 2008

EU – CARIFORUM States EPA December 2008

EU – Papua New Guinea / Fiji December 2009

EU – Serbia February 2010

EU – Korea, Republic of July 2011

EU – Eastern and Southern Africa States Interim EPA May 2012

EU – Colombia and Peru March 2013

EU – Central America August 2013

EU – Ukraine April 2014

 21

ENTERED INTO
FTAs
EFFECT

EU – Cameroon August 2014

September
EU – Georgia
2014

September
EU – Moldova, Republic of
2014

September
EU – Côte d'Ivoire
2016

EU – SADC October 2016

EU – Ghana December 2016

EU - Colombia and Peru - Accession of Ecuador January 2017

September
EU – Canada
2017

EU – Armenia FTA January 2018

EU – Japan FTA February 2019

EU – Singapore FTA November 2019

EU – Vietnam FTA August 2020

EU – UK FTA May 2021

22

5.6 Customs policy
• As an EU member state, Luxembourg implements the
EU customs regulations. There are no customs duties
levied on the movement of goods within the EU.
◦ Pedophilic material: ie, any kind of item with
pornographic images or representations of minors.
◦ Medication for humans (apart from medicine
required by a traveler).

◦ Weapons and ammunition.

• Customs duties are levied on goods imported into
Luxembourg from a non-EU country, and these are
based on the origin and the classification of goods.
Customs duty for non-EU member countries is usually
rather low (around 4.2% on average). There are however
three sectors and product categories which are
subjected to a special higher tariff, such as the clothing
sector, fabrics and agro alimentary products (around
17.3%).
◦ Narcotics.
◦ Cultural artefacts (works of art, collection items or
antiques in particular).
◦ Oil products, with the exception of fuel found in
normal fuel tanks of traveler vehicles, plus a spare
can of fuel of a maximum 10 litre capacity.

◦ Products containing certain harmful substances (eg.

• From 1 July 2021, goods up to €150 that are purchased
lead salts, nickel).
outside the EU may be exempt from customs duties if
the seller uses the Import-One-Stop-Shop (IOSS) system ◦ Endangered species of flora and fauna and any
to declare VAT. products made from those species.

• Luxembourg levies excise duty on alcoholic products,
tobacco and energy products and electricity (fuels,
LPG, methane natural gas and energy products used
for heating etc.), which are based on the origin and
classification of goods.
• Excise duties are paid in the Member State of the EU
in which the products are released for consumption.
Before this stage, excise suspensive arrangements
allowed the production, storage and circulation of
products between businesses, without paying excise
duties.
5.7 Import restrictions
• Luxembourg implements the EU directives relating to
import regulations and quotas.
◦ Plants, plant products and other products (bark,
seeds, earth and culture media) which are banned
from import into all EU Member States.
◦ Animals or animal-based products that are prohibited
under national or community-wide health regulations.
◦ Skins or furs of dogs and cats or any product
containing these materials.
5.8 Customs incentives
• There are no customs controls restricting the
movement of goods within the EU. Goods imported
from non-EU countries into customs warehouses are
exempt from import duties and VAT. Such goods may
be released for circulation within the EU, or re-exported.

• Quantity thresholds have been set for certain kinds of
merchandise, and once these thresholds are exceeded,
the goods are deemed to be for commercial purposes.
The following products are restricted in Luxembourg:
◦ Tobacco products
◦ Alcoholic drinks
• EU businesses are allowed to import goods from non-
EU countries without payment of any customs duty
if they are for re-export after processing. There are
currently no duties on the export of goods outside the
European Union. However, the exporting business must
declare its exports electronically via the Customs and
Excise Agency’s eDouane Import/Export system.

◦ Other goods, including perfume, coffee and tea.

• Businesses that wish to produce, process, hold, send

or receive excise products under duty suspension
must use one of the different excise suspensive
arrangements. For that, they must hold one or more
authorisation(s) delivered by the Customs and Excise
Administration. A guarantee covering a percentage, or
the totality of suspended excise duties must be filed
with the Customs and Excise Administration for any
excise authorisation.

• Goods that may not be imported into Luxembourg

include the following.

◦ Counterfeit and pirated goods.

 23

Labour environment

6.1 Social security system
• Companies must be registered as an employer with
the CCSS – Centre Commun de la Sécurité Sociale – a
déclaration d’exploitation. After a delay of up to four
weeks following their application, the employer receives
an ID number to be used for all payroll declarations
including employee registration, salary declaration with
the CCSS and withholding tax declarations with the
local tax office.
sickness benefits to the employee on sick leave. From
this point on, the employer is no longer required to pay
a salary to the employee, for as long as the employee
receives benefits from the CNS.
• The mutual insurance scheme, upon receipt of the
monthly illness declaration, reimburses the employer
80% of the overall salary costs (gross pay + employer’s
contributions) paid during the period of continuation of
pay in the case of sick leave due to illness or accident.

• Luxembourg employees must be registered with the

social security scheme, which provides protection in
EMPLOYER EMPLOYEE
case of sickness, unemployment, accident and pension SOCIAL
CONTRIBUTION CONTRIBUTION
benefits. INSURANCE
(% OF SALARY) (% OF SALARY)
• Employers must inform the Joint Social Security Centre
(Centre Commun de la Sécurité Sociale, CCSS) of the Health Benefits in cash: Benefits in cash:
gross salaries paid to employees and the exact number insurance 0.25% 0.25%
of hours worked by employees, every month.
Pension Benefits in kind: Benefits in kind:
• Based on the above information, the CCSS calculates insurance 2.8% 2.8%
the total social contribution to be paid by the employer,
which includes both the employee and employer Dependence
contributions. 8% 8%
insurance

• The monthly contribution cannot be less than the

Accident insur-
social minimum wage for a non-qualified worker aged - 1.4%
ance
18 years and above, or more than five times the social
minimum wage for a non-qualified worker aged 18
years and above. Occupational 0.75% -

• Employers are required to pay the monthly social

security contributions within 10 days of the issue of Health
the contribution statement by the CCSS. Contributions insurance 0.14% -
which are unpaid on or after the due date, bear late- (STM)
payment interest starting from the first day of the first
month after the contribution deadline. The interest rate
0.60% - 2.98%
on late payments is set at 0.6 % per whole calendar
Mutual (depends on
month. Fractions of months are disregarded.
the contribution
insurance class to which -
• An employer must continue to pay the employee in case
scheme the business
of sick leave due to illness or an occupational accident,
and must do so until the end of the month during which belongs)
the 77th day of sick leave occurs, during a reference
period of 12 successive months (Under the Law of
10 August 2018, the 12 consecutive months will be
increased to 18 consecutive months).

• From the month following the 77th accumulated day of

sick leave, the National Health Fund – Caisse Nationale
de Santé, CNS – takes over from the employer and pays
24
6.2 Hiring/retrenchment issues
• Employment contracts in Luxembourg may be fixed
term or permanent. The contract may be written or
verbal, where local labour law recognises the validity of
a verbal contract. However, it is strongly recommended
to conclude a contract in writing. The contract must be
finalised before or on the first day of employment.
• A permanent contract must include:
◦ Identities of the parties involved
◦ Date on which work is to begin
◦ Workplace information
◦ Nature of the post and, where applicable, a
description of the duties involved
◦ Normal working hours
◦ Basic remuneration and any supplements (agreed
bonuses or profit-sharing)
◦ Length of the probationary period, if applicable
◦ Duration of paid leave and notice periods to be
observed
◦ Any other additional clause (collective agreements
etc.).
◦ Fixed-term contracts are for specific, short-term jobs
and must include:
◦ The date on which the contract ends or the minimum
length of time for which it will run
◦ Name of the employee who has been replaced,
where applicable
◦ Length of the probationary period, if any
◦ Renewal clause, where applicable
• Employers may also enter into collective bargaining
agreements with employees.
• When looking to hire for a position, employers
must submit a declaration of vacant position to the
National Employment Administration – Agence pour le
Développement de l’Emploi – ADEM. This should take
place three days before any publication of the vacancy
elsewhere, and before any employee is recruited and an
employment contract is drafted.
• Employers may require employees to serve a
probationary period, which can vary from two weeks
to 12 months. If the contract is concluded verbally, or
following a fixed-term employment contract, it cannot
include a trial period.
• Procedures for dismissal of employees vary according
to the situation:
◦ Termination of employment during a probation
period: employers and employees can terminate
the employment contract without compensation.
However, both have to respect a notice period
depending on the probation period duration, which
is set at four days per month, without being shorter
than 15 days and without exceeding one month. The
employment contract cannot be terminated during
the first two weeks in the trial period, without the
other party’s consent, except where there is a case
of dismissal for serious misconduct. The statutory
notice period (that applies to any dismissal) is:
► Two months for a length of continued service of
less than five years
► Four months for a length of continued service of
more than five years and less than 10 years
► Six months for a length of continued service of
at least 10 years.
◦ Dismissal with notice: An employer who wishes
to dismiss an employee for any reason other than
serious misconduct must provide the employee with
a notice period of a fixed length, depending on the
employee’s seniority and severance pay, provided
the employee has worked for five years or more.
This amount depends on the employee’s seniority. If
the business employs more than 150 staff, it must
conduct a pre-dismissal interview with the employee
before effective dismissal can take place. Businesses
with at least 15 staff members must also notify the
Economic Committee about each dismissal, for
reasons that have nothing to do with the employee’s
person.
► The statutory notice periods (that apply to any
dismissal) are:
► Two months for a length of continued service of
less than five years
► Four months for a length of continued service of
more than five years and less than 10 years
► Six months for a length of continued service of
at least 10 years.
◦ Dismissal with immediate effect for serious
misconduct: an employer may dismiss an employee
with immediate effect without severance pay, if
the employee commits a mistake that makes the
working relationship impossible. This is strictly
regulated.
• Collective redundancy: An employer who plans to
dismiss at least seven employees over a period of 30
days, or at least 15 employees over a period of 90 days,
for reasons not related to the employees’ behaviour,
must use a collective redundancy procedure, which
comprises the following stages:
◦ Informing the National Employment Administration,
and the staff representatives or the employees
themselves

◦ Negotiating a redundancy plan to reduce the number
of redundant employees
◦ Implementing the redundancy plan
◦ Requesting tax exemption from the Economic
Committee for voluntary departure or severance pay,
if applicable.
6.3 Foreign personnel
• An employer who is not presented with a suitable
candidate by the National Employment Administration
(ADEM) within three weeks following his/her declaration
of a vacant position, and upon receipt of a certificate
from ADEM, is authorised to start the recruitment
process for a non-EU resident employee of his/her
choice.
• Residents of the EEA and Switzerland do not require a
work permit to work in Luxembourg. All other foreign
nationals who intend to live and work in Luxembourg
must have a valid residence permit, which includes
both the work permit and the sojourn (temporary stay)
permit. A person can stay up to 90 days in the country
to find work. Post this time, the person would require a
residence permit.
• For internationals coming to Luxembourg via
employment by a Luxembourg-based company, the
employee contract would help in getting a residence
permit on the basis of employment, if it meets the
below requirements:
◦ Minimum wage no less than €2,256.95 per month
(as on 1 October 2021 at index 855.62) for a non-
qualified worker and €2,708.34 for a qualified
employee
◦ Certificate for the profession (a degree in the field, for
example)
◦ If hired for manual skills, proof of two years’
experience and a certificate
◦ If one does not have a certificate, then proof of ten
years of practical experience in a similar field
◦ If the profession does not require a certificate, then
six years of practical experience in a similar field.
6.4 Work permits
• Foreign nationals who do not belong to the EEA or
Switzerland are required to hold a valid residence
permit, which includes the work permit and the
sojourn (temporary stay) permit, to live and work in
Luxembourg.
• Initially, the residence permit is issued for one year,
and allows the employee to work for any employer but
only within a particular sector and occupation. When
the residence permit is renewed after the first year,
its validity increases to two years, but the restrictions
25
on sector and occupation remain. From the second
renewal onwards, the residence permit is issued for a
period of three years, and restrictions on sector and
occupation are lifted.
• Non-EU nationals who are in Luxembourg for less than
three months and wish to work during this period must
have a work permit.
• Residents of certain non-EU countries also require
valid visas to enter Luxembourg, issued by a consular
authority from one of the countries in the Schengen
area. Such persons must apply for a short-stay visa
(Visa C) for a stay of less than 90 days, or a long-stay
visa (Visa D) for a stay of more than 90 days.
• Before applying for a Visa D, a foreign national is
required to apply for a temporary residence certificate
to the Immigration Directorate of the Luxembourg
Ministry of Foreign Affairs.
6.5 Leave and public holidays
• There are 11 public holidays in a calendar year in
Luxembourg. Employees are entitled to a minimum
of 26 working days of paid annual leave. For part-
time employees, the calculation will be done on a pro
rata basis. In principle, the employee must have been
employed for a minimum of three months before taking
any holidays.
• Employees are also entitled to leave on personal
grounds; training leave, leave for carrying out a mandate
– such as political leave for elected community
representatives – and leave on the grounds of non-
professional activities.
• In addition to the legal annual leave period, days off
can be granted for special events (marriage, death of a
close relative etc.).
• Paternity leave: a special leave of 10 days is granted
to the father in the event of the birth of a child, or the
arrival of a child of less than 16 years of age with a view
to an adoption.
• Maternity leave: maternity leave starts eight weeks
before the expected date of delivery and continues 12
weeks after the actual date of delivery.
• Adoption leave: adoption leave of 12 weeks from the
start date communicated to the CNS is granted to
parents who adopt one or more children, who have not
yet reached the age of 12.
• Job search leave: when an employee is dismissed with
notice, he or she has the right to request leave to find a
new job during his or her notice period.
26
6.6 Local office working hours and time zone
• Luxembourg law provides for a working time of 40
hours per week and eight hours per day. Time spent
travelling to or from work is not included.
• The employer may determine a reference period of
up to four months, during which employees may be
employed beyond the limits mentioned above. In order
to do so, the employer must set up:
◦ A working hours plan (plan d’organisation du travail -
POT) or
◦ Flexible working hours (flexitime).
◦ The maximum work hours cannot exceed 10 hours
per day however, or 48 hours per week in either case.
• The employer must also grant minimum rest periods to
his employees:
◦ 11 consecutive hours within each 24-hour time frame
◦ 44 consecutive hours within each seven-day period.
• Night working hours:
◦ 10 p.m. and 6 a.m. in the morning for all sectors
excluding hotel and catering
◦ 11 p.m .and 6 a.m. for hotel and catering.
• Sunday work: Sunday work is forbidden apart from in
certain sectors of activity or when authorised by the
Inspection du Travail et des Mines (Labour and Mines
Inspectorate), eg. managerial jobs, trading in tourist
regions, urgent work and so on.
• Overtime: if overtime is worked, the maximum working
time cannot exceed 10 hours per day, nor 48 hours per
week.
6.7 Payroll cycles
• Employers are required to pay employees’ salaries
before the end of each month. The salaries are usually
paid in 12 or 13 instalments. It is up to both parties
to reach agreement, unless a collective bargain is
applicable.
• The net salary is paid after deduction of the mandatory
social contributions from the employee’s part and the
withholding tax calculated according to the employee’s
tax card. It is the obligation of the employee to remit
this official document, which mentions the individual tax
status based primarily on the family situation, updated
each year.
• The gross monthly salary is calculated considering
40 hours a week and must not be less than the social
minimum wage.
• Overtime compensation: the employer must
compensate all employees who work overtime by
granting them 1.5 hours of time off per hour of overtime
worked. If it is not possible to compensate overtime
with time off (because of business operations or the
concerned employee is leaving the company etc.),
the employer must pay every hour of overtime with a
minimum of 140% of the hourly salary.
• Night hours compensation: the employer must make
additional payments for each hour worked at night, as
per the following:
◦ 15% minimum for all sectors if a collective
agreement is in place in the business (the exact rate
of the increase is thereby set by this agreement)
◦ 25% from 1a.m. in the hotel and catering sector
(either in compensatory leave or in cash).
6.8 HR legislation
• Employment-related regulations in Luxembourg are
based on the EU regulations and the Luxembourg
Labour Code. The Labour Code regulates all
employment-related issues, such as types of
employment contracts, terms and conditions of
employment, wages, leaves, social security and other
benefits, dismissal, discrimination, collective bargaining
agreements and employment of foreign nationals. The
Labour Ministry is responsible for implementation of the
Labour Code, and determination of policies regarding
employment and industrial relations.
• On 1 August 2018, the new law implementing the GDPR
(General Data Protection Regulations) in Luxembourg
and repealing the former data protection law of 2
August 2002 amended the Article L. 261-1 of the
Luxembourg Labour Code, with effect from 20 August
2018. This provision lays down the conditions for data
monitoring at the workplace and rendering the use of
such monitoring easier for employers.
• Under the new law, the employer must now inform
employees of the type of monitoring system it intends
to set up. It is then up to the individual employee to take
any concerns they may have to the CNPD (Commission
Nationale pour la Protection des Données – National
Data Protection Commission) directly.
• The company must also give prior notice to the staff
delegation before the installation of any monitoring
equipment or, failing that, the ITM (Luxembourg’s labour
inspectorate).
• On 12 July 2018, the new collective bargaining
agreement for 2018-2020 was officially signed by ABBL,
ALEBA, LCGB-SESF and OGB-L, aimed to regulate the
general terms of work between the member banks of
the association and their employees.
• Various measures relative to recruitment, working
time, system of remuneration, and training policy are
explicitly included in the text of the collective bargaining
agreement.

Compliance requirements
7.1 Base Erosion and Profit Shifting (BEPS)
• On 7 June 2017, Luxembourg signed the Multilateral
Instrument (MLI) aiming to implement the tax treaty-
related measures deriving from the OECD’s Base
Erosion and Profit Shifting (BEPS) Project.
◦ The MLI entered into force for Luxembourg on 1
August 2019.
• Luxembourg has adopted the minimum standards
to remain BEPS-compliant, while deciding not to
opt into certain provisions which could be seen as
detrimental to competitiveness (limitation on benefits,
immovable property provision, rules on dividend
transfer transactions, some permanent establishment
rules, hybrid mismatches for transparent entities, dual
residence etc.).
• On 20 June 2018, the Luxembourg Parliament adopted
Bill No. 7318 (“the law”) implemented into domestic law
by the Council Directive (EU) 2016/1164 of 12 July 2016
(so-called ‘ATAD 1’).
• The Law foresees the following measures:
◦ Interest limitation rules (BEPS AP 4) – Article 4 of
ATAD 1: the exceeding borrowing costs of a taxpayer
will be deductible in any tax period only up to the
higher of i) 30 % of the taxpayer’s net revenues before
interest, tax, depreciation and amortisation (EBITDA)
or ii) €3m. Exempt income, and expenses connected
to exempt income, are not to be considered for the
computation of EBITDA.
◦ Controlled foreign company rules – CFC (BEPS AP
3) – Articles 7 and 8 of ATAD 1: introduction of CFC
rules with the aim to attribute to a Luxembourg
parent or head office undistributed profits of a
subsidiary or permanent establishment located in a
low tax jurisdiction. Consequently, CFC income will
be subject to corporate income tax in Luxembourg
(but not to municipal business tax).
◦ Intra-EU anti-hybrid rule (BEPS AP 2) – Article 9 of
ATAD 1: the Law introduces a new Article 168ter
into the Luxembourg income tax law (LITL) to
tackle cross-border hybrid mismatches generated
by existing differences in the legal characterisation
of financial instruments which cause a double
deduction in Member States and/or a deduction of
the income in one Member State without inclusion in
the tax base of the other Member State.
27
◦ General anti-abuse rule – GAAR – Article 6 of ATAD 1:
the Law amends the existing Luxembourg domestic
GAAR rules to further align the latter with ATAD 1 and
to broaden the application of the existing legislation
to non-genuine transactions where one of the main
purposes is to obtain a tax advantage.
◦ Exit tax rules (Article 5 of ATAD 1): capital gains on
assets transferred outside Luxembourg should be
immediately taxable. Pursuant to the Law, a deferral
may apply in case of transfer of assets to a Member
State, or to an EEA State with which Luxembourg or
the EU has an agreement on the recovery of taxes.
Taxpayers will in that case have the option to pay
the exit tax in equal instalments during a maximum
period of five years (without guarantees or interest).
◦ The Law will be applicable in financial years starting
on or after 1 January 2019, except for the provisions
regarding exit taxation which will apply as from 1
January 2020.
7.2 Foreign Account Tax Compliance Act (FATCA)
• Luxembourg signed an Intergovernmental Agreement
(IGA) Model 1 with the United States on 28 March
2014, under the terms of which FATCA will be applied in
Luxembourg. The IGA was ratified on 24 July 2015 by
the Luxembourg Parliament.
• In June 2018, the Luxembourg tax authority issued
guidance concerning FATCA and the common reporting
standard (CRS). According to this, the IRS guidance
on unauthorised characters for the DocRefIds data
element must not to be taken into consideration by
Luxembourg FIs as part of their reporting obligations.
The DocRefIds must always contain the “underscore”
character, as defined in the circular ECHA3 in the
chapter “RefIds Naming Convention”, otherwise the file
will be rejected.
• The Luxembourg Tax Authority also announced that,
where a Tax Identification Number (TIN) could not
be obtained after applying due diligence rules under
FATCA, the ACD will only accept nine capital letters, “A”
or the code “#NTA001#” for the field. Therefore, it will no
longer be possible to load the field with nine zeros.
28
7.3 Common Reporting Standard (CRS)
• On 18 December 2015, the Luxembourg Law on the
automatic exchange of financial account information
in the field of taxation (the CRS Law) was enacted.
The Law aimed to introduce the CRS, developed by the
OECD, into Luxembourg law and has been applicable
since 1 January 2016.
• By 30 June each year, at the latest, the Bank
automatically reports to the Luxembourg tax authorities
(Administration des Contributions Directes) the
personal financial data for the previous year for the
accounts of the persons concerned.
• Before 30 September each year, the Luxembourg tax
authorities need to transfer this information to the
tax authorities of the client’s country of tax residence
or to those of the countries in which indicia have
been detected without being invalidated by a self-
certification.
• On 6 February 2017, the Luxembourg tax authorities
issued a new Circular ECHA 4 (‘the Circular’), regarding
the modalities for preparing and filing the annual report
under the CRS schema.
• A CRS report needs to be filed electronically with the tax
authority by 30 June of each year by every Reportable
Financial Institution (FI) that has Reportable Accounts.
The first CRS reporting was due no later than 30 June
2017.
• The Luxembourg tax authority decided that filing a
‘nil report’ in the absence of Reportable Accounts is
optional. Therefore, general partners that are classified
as Non-Reporting Financial Institutions for FATCA
purposes would not be required to file a nil report for
CRS purposes. Nil reports under FATCA would however
remain.
• On 13 March 2017, Luxembourg published updated
frequently-asked questions (FAQs) on the OECD CRS.
Luxembourg published prior FAQs on 21 April 2016.
The FAQs answer specific questions on FIs, financial
accounts, due diligence, and declaration / reporting.
• On 9 July 2018, a Grand Ducal Regulation of
Luxembourg was signed in order to amend the list of
Reportable Jurisdictions for the reporting year 2017
for CRS. The updated list excluded the Bahamas and
included Hong Kong and Macao.
• In October 2018, Luxembourg’s tax authority issued the
latest version of the CRS FAQs containing an additional
section on self-certification and tax residence forms.
• On 6 May 2021, the Luxembourg Tax Authority issued
an updated version of the CRS Guidance FAQs that
contain updates and new questions related to Nil
Reporting and updated XSD Schemas.
7.4 International Financial Reporting Standards (IFRS)
• A company may choose to prepare its financial
statements either in accordance with the Luxembourg
Generally Accepted Accounting Principles or in
accordance with International Financial Reporting
Standards, as adopted by the European Union (IFRS).
In cases where the companies opt for preparing their
annual accounts according to IFRS, they need to
disclose additionally in the notes to the accounts the
information stipulated in the Luxembourg law, to fulfil
the local reporting requirements.
• In Luxembourg, IFRS is required for domestic public
companies and also for listings by foreign companies.
All domestic companies whose securities trade in a
regulated market are required to use IFRS, as adopted
by the EU in their consolidated financial statements.
7.5 Anti-Money Laundering (AML)
• Costa Rica’s money laundering offence is set out in
Luxembourg’s anti-money laundering (AML) and
counter-terrorist financing (CTF) regime was enhanced
on 14 December 2012, when the CSSF introduced
Regulation No12-02 in response to the 3rd Financial
Action Task Force AML/CTF mutual evaluation report
on Luxembourg, issued in February 2010.
• The new legal framework included a new assessment
of risks based on various criteria such as client risk,
country risk, product risk and transaction risk.
• On 26 April 2017, the Bill of Law no. 7128 (Bill of Law),
to implement into national legislation some provisions
of the 4th AML Directive and reinforce measures of the
Regulation on information accompanying transfers of
funds, was introduced to the Chamber of Deputies.
• On 13 February 2018, the Luxembourg Parliament
adopted bill no 71281, which implements most of the
provisions of Directive (EU) 2015/849, the 4th anti-
money laundering directive (AMLD IV), into Luxembourg
law. Key changes of the Amending Law included the
following:
◦ Amended definition of beneficial owner of corporate
entities and trusts.
◦ Setting of different thresholds with respect to the
carrying out of customer due diligence measures.
◦ Enhanced requirement for professionals carrying out
a risk assessment.
◦ Requirements regarding (local and foreign) politically
exposed persons.
 29

◦ Emphasis on data protection requirements and ◦ Commission agents, private portfolio managers and
employee training. market makers

◦ Whistleblowing. ◦ Managers and distributors of units/shares in

undertakings for collective investments (UCIs)
◦ Record-keeping of documents and information at the
◦ Financial intermediation firms, registrar agents,
request of competent authorities.
management companies, trust and company service
providers and operators of a regulated market
◦ Increased sanctions and new injunction and sanction
authorised in Luxembourg
powers for Supervisory Authorities.
◦ Foreign exchange cash operations
◦ Increase of criminal sanctions.
◦ Debt recovery and lending operations
• On 10 August 2018, new provisions entered into force
in national law to allow the Luxembourg tax authorities ◦ Pension funds and mutual savings fund
to have access to information on taxpayers for AML. administrators
The Law implements the Directive 2016/2258 of 6
◦ Corporate domiciliation agents, company formation
December 2016 (amending Directive 2011/16) with
and management services, client communication
regard to the accessing of AML information by tax
agents, and financial sector administrative agents
authorities.
◦ Primary and secondary financial sector IT systems
• In November 2018, the European Commission accused and communication networks operators
Luxembourg of not having completely implemented
the anti-money laundering rules laid down by the fourth ◦ Insurance brokers and providers
directive.
◦ Auditors, accountants, notaries, and lawyers
• Luxembourg’s anti-money laundering (AML) and
◦ Casinos and gaming establishments
counter-terrorist financing (CTF) regime was enhanced
on 14 August 2020, when the CSSF introduced ◦ Real estate agents
Regulation No 20-05, amending CSSF Regulation 12-
02 of 14 December 2012, regarding the fight against ◦ Any other natural or legal persons trading in goods
money laundering (ML) and terrorist financing (TF). to the extent that payments are made in cash in an
amount of €15,000 (approximately $20,250) or more.
• With its entry into force on 27 December 2020, the
Law of 19 December 2020 provides Luxembourg with
a dedicated legislative arsenal for the implementation
of financial restrictive measures adopted by the United
Nations and the European Union.

• On 24 September 2021, by way of Circular 21/782,

the Commission de Surveillance du Secteur Financier
(CSSF) adopted the European Banking Authority’s
(EBA) Revised Guidelines on customer due diligence
and risk factors that credit and financial institutions
should consider when assessing the money laundering
and terrorist financing (ML/TF) risk associated with
individual business relationships and occasional
transactions (“the Guidelines”). Luxembourg is taking
steps towards tightening its AML systems, with a new
draft bill aimed at sanctioning money laundering and
tax evasion.

7.6 Know Your Customer (KYC)

• The Luxembourg KYC law covers the following entities:

◦ Banks and payment institutions

◦ Investment, tax and economic advisers

◦ Brokers, custodians and underwriters of financial

instruments
30

7.7 Shareholder/UBO registration

• The UBO Register Law was published in the

Luxembourg Official Gazette on 15 January 2019 and
comes into force on 1 March 2019. Starting from 1
March, concerned companies have a six-month period
to comply with the following provisions:

• An entity must collect and then hold adequate

internal BO files at their registered office (including all
underlying supporting documentation), which includes
name, private address, TIN, nationality, place/date
of birth and the nature and extent of the interest the
beneficial owner (BO) holds and a mention of where the
information is being kept.

• The identified BO has a general right to appeal a

decision related to his or her BO status and the filing of
any information.

• This information must be provided (electronically)

within one month of incorporation of an entity or within
one month following a relevant change to the RBE (the
latest point that the entity should have known of the
change).

• Luxembourg is among the first countries in the EU to

establish a public UBO Register. At the end of 2020,
the completeness rate of the register was around 90%.
Exemptions to the public nature of the information
entered in the UBO register are exceptional measures
that are decided on a very strict case-by-case evaluation
by the Luxembourg Business Register, which manages
the UBO.

7.8 Mandatory Disclosure Rules (MDR)

• EU directive 2018/822 (the Directive), amending

Directive 2011/16/EU, provides the legal requirement
for all EU Member States to implement the Mandatory
Disclosure Rules into local law. The MDR are
concerned with reporting to the national authorities
on certain cross-border arrangements/transactions/
structures (CBA) creating potentially “aggressive” tax
benefits or impacting the CRS or the identification of
beneficial owners. Reporting obligations lie with any
intermediaries knowingly involved in the implementation
of such arrangements or in their absence with the entity
itself.

• Initial reporting is to be done by 31 August 2020,

covering the period beginning on 25 June 2018.

• On 13 May 2020, Luxembourg tax authorities

issued guidance addressing the EU directive on
the mandatory disclosure and exchange of cross-
border tax arrangements, under which taxpayers and
intermediaries are required to report cross-border
reportable arrangements from 1 July 2020.

◦ On 17 February 2021, the guidance was updated to

address the impact of Brexit on MDR obligations.
 31

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