Luxembourg Corporate Tax - Guide for International Expansion

Expanding your business to Luxembourg? Understanding the corporate tax landscape is crucial for making informed decisions about your European operations.

Luxembourg offers a competitive tax environment within the EU, making it an attractive destination for international businesses. Whether you're considering establishing a subsidiary, acquiring a local company, or simply exploring new markets, getting to grips with corporate tax obligations will help you plan effectively and ensure compliance from day one. Wise Business can help streamline your financial operations with local EUR account details, making it easier to manage payments and banking in Luxembourg's business-friendly environment.

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This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Luxembourg Corporate tax rate in 2025

Luxembourg's standard corporate income tax rate is 16% for 2025, combined with a municipal business tax that varies by municipality, resulting in an aggregate rate of approximately 23.87% for Luxembourg City.¹ This places Luxembourg competitively within the EU average of 21.27%.²

The corporate income tax consists of two main components: the corporate income tax itself at 16% and the municipal business tax (impôt commercial communal) which ranges from 6.75% to 12% depending on the municipality.³ Luxembourg City, where most international businesses are based, applies a municipal business tax rate of 6.75%, bringing the total effective rate to 23.87%.¹

Companies are subject to a 7% solidarity surcharge on the corporate income tax portion, in addition to the municipal business tax. For taxable income up to €175,000, the CIT plus surcharge amounts to 14.98%; for income between €175,001 and €200,000, the rate gradually increases up to 17.12%; and for income above €200,000, the rate is 17.12%. The municipal business tax is added on top of these amounts and varies by municipality.⁴

Luxembourg resident companies are taxed on their worldwide income, while non-resident companies are only taxed on Luxembourg-source income.⁴ The country's extensive network of double taxation treaties helps prevent double taxation for international businesses operating across multiple jurisdictions.⁵

Read more about the corporate tax in United States

How to pay corporate tax in Luxembourg

Corporate tax payments in Luxembourg must be made in euros through the country's electronic tax system, eTax. All companies are required to file their annual corporate income tax return by 31 March of the year following the tax year, with payment due at the same time.⁶

The Luxembourg tax administration (Administration des contributions directes) operates a comprehensive online platform where businesses can file returns, make payments, and manage their tax affairs.⁷ Companies typically make quarterly advance payments based on the previous year's tax liability, with a final settlement when filing the annual return.⁶

Payment methods include bank transfers, direct debits, and online payments through the eTax portal. All payments must be made in euros, so companies operating with different functional currencies need to convert their payments accordingly. The tax administration provides exchange rates for conversion purposes when necessary.

In Luxembourg, late payments are subject to a monthly penalty of 0.6% on outstanding amounts. Additionally, companies that file their returns late may face a fine of 10% of the tax due, with other penalties for tax avoidance ranging from 5% to 25% of the avoided taxes.^{6 8}

Let's calculate the annual tax liability for a company with €1.5 million turnover. Assuming a profit margin of 15%, the taxable profit would be €225,000. At Luxembourg's combined corporate tax rate of 23.87% (including CIT, solidarity surcharge, and municipal business tax for Luxembourg City), the annual tax due would be:

€225,000 × 23.87% = €53,707.50

If this company pays its tax 30 days late, the penalty would be calculated as:
€53,707.50 × 0.6% ≈ €322.25 for the first month

When expanding your business to Luxembourg, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to expand internationally with local EUR account details. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

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Tax Compliance in Luxembourg

The following are some steps to help your company stay compliant with Luxembourg’s tax regulations:

• Register for taxes early: After incorporation, businesses must register with the tax authorities to pay Corporate Income Tax (CIT), Value Added Tax (VAT), Withholding Tax (WHT), and employment contributions. This ensures legal operation and helps avoid penalties.⁷
• Understand corporate tax obligations: The Luxembourg corporate tax system applies at the national and municipal levels. Companies must make their corporate tax payments per the Direct Tax Administration (ACD) rules. Accurate calculation and timely payment are critical to avoid interest charges or fines.
• Annual tax filing: Businesses must submit an annual corporate tax return. Tax returns are processed automatically using the electronic assistant on MyGuichet.lu. The return must be filed before 31 December following the tax year. Both resident and non-resident taxpayers subject to assessment must file an income tax return (Form 100).⁷
• Appoint management: A company manager or board of directors oversees compliance, filing requirements, and ensures tax obligations are met on behalf of shareholders.

International Expansion to Luxembourg

Expanding into Luxembourg requires a clear understanding of its corporate tax rules. They play a central role in shaping the country’s reputation as a global financial center.

Bordering France and Germany, Luxembourg provides direct access to two of the EU’s largest consumer markets.¹⁰ The country also ranks among the most competitive economies worldwide, securing a top 20 position in the IMD World Competitiveness Ranking 2025 and maintaining AAA credit ratings from major agencies.¹¹

Its economy is both open and diversified. Around 65% of goods and services produced are exported, demonstrating strong international trade links.¹² The country is also home to one of Europe's most innovative financial centres. More than 120 global banks from 25 countries operate in Luxembourg, managing over €1 trillion in assets. Its investment fund industry is the largest in Europe, with over €5 trillion in assets under management.¹³ For businesses seeking financing opportunities, this liquidity-rich environment presents a significant advantage.

Infrastructure is another strong point. Luxembourg Airport handles over 5 million passengers annually and consistently ranks among Europe’s top ten cargo hubs.^{14 15} The facility offers 120 direct flight destinations, making it a reliable gateway to the Greater Region.¹⁵

Talent availability further supports expansion. Luxembourg is ranked #2 globally on the IMD World Talent Ranking. Around 74% of the workforce is foreign nationals, highlighting the country’s openness to international professionals.¹⁶

Businesses also benefit from Luxembourg’s stable political climate, strong legal framework, and one of the highest GDPs per capita in the world. Combined with a competitive Luxembourg corporate tax rate and an efficient corporate tax return filing process, the country presents an excellent environment for new ventures.

The steps for starting a business in Luxembourg are:¹⁷

1. Develop a business idea and create a plan.
2. Secure financing.
3. Select a legal structure and company name.
4. Register with the Luxembourg Business Register (LBR).
5. Complete tax registration with the Direct Tax Administration (ACD).
6. Register employees with the Joint Social Security Centre if hiring staff.
7. Open a local bank account.

Before you set foot in any region, you must do the necessary research. Find out the top banks in Luxembourg and how corporate taxes work here. Such fundamental information makes business establishment easier and escalates the chances of higher sales.

Read more about the corporate tax in Nevada

Incorporation of Business in Luxembourg

To incorporate a business in Luxembourg, you must register with the Luxembourg Business Register (LBR). The process requires preparing incorporation documents, selecting a company name, and choosing the proper legal form.

You must also open a bank account in Luxembourg to deposit the required share capital, set up a registered office, and register for corporate tax in Luxembourg with the Direct Tax Administration (ACD). If hiring staff, companies must register employees with the Joint Social Security Centre (CCSS).¹⁸

You will generally need the following information and documents:¹⁸

• Company name and legal form: must be unique and compliant with Luxembourg rules
• Articles of association or constitution: outlining how the company is managed
• Registered office address in Luxembourg: mandatory for all entities
• Shareholders, directors, and the company secretary details: to establish management and ownership
• Minimum share capital: varies depending on the entity type

Business Entities in Luxembourg

According to the Commercial Companies Act of August 10, 1915 (as amended), entrepreneurs can choose from several legal forms:⁹

• Société à Responsabilité Limitée (SARL): The most common option for SMEs. Requires a minimum share capital of €12,000 and offers limited liability protection. Often used by entrepreneurs who benefit from the small business corporate tax rate.
• Société Anonyme (SA): A public limited company with at least €30,000 in share capital. Suitable for large businesses and those planning to list shares or raise public funding.
• Société en Commandite Simple (SCS)/Société en Commandite Spéciale (SCSp): Partnership structures popular in investment funds and joint ventures. Provide flexibility in governance and profit-sharing.
• Société Coopérative (SC): A cooperative structure designed for groups or associations with common goals in agriculture and services.

All incorporated businesses are subject to Luxembourg corporate tax, which includes corporate income tax, municipal business tax, and a small contribution to the unemployment fund. The types of corporate tax and applicable rates depend on entity size and activity. Generally, proper corporate tax return filing is essential. In this regard, seeking advice from a corporate tax expert ensures compliance while optimizing available deductions.

International corporate tax best practices

Successful international tax management requires a strategic approach that balances compliance with efficiency. Companies should establish robust systems for tracking obligations across all jurisdictions where they operate, ensuring timely filing and payment to avoid costly penalties.

Understanding and leveraging double taxation treaties is crucial for minimising tax burdens. Luxembourg has an extensive network of over 80 double taxation agreements, which can significantly reduce withholding taxes and prevent double taxation on the same income. Companies should work with qualified tax advisors to structure their operations optimally within these treaty frameworks.

Maintaining comprehensive and accurate financial records is essential for both compliance and strategic planning. This includes proper documentation of transfer pricing policies, substance requirements, and economic activities in each jurisdiction. Luxembourg's participation in international transparency initiatives, including the OECD's Base Erosion and Profit Shifting (BEPS) framework, means companies must demonstrate genuine business substance and economic activity.

Regular monitoring of tax law changes across all operating jurisdictions helps companies stay compliant and identify new opportunities. Luxembourg frequently updates its tax legislation to maintain competitiveness while meeting international standards, making ongoing professional advice valuable for optimising tax positions.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to Luxembourg efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.

• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.

• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.

• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

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FAQs - Corporate tax in Luxembourg

Who is liable for corporate tax in Luxembourg?

All companies resident in Luxembourg for tax purposes are liable for corporate income tax on their worldwide income. A company is considered tax resident if it has its registered office, central administration, or principal establishment in Luxembourg. Non-resident companies are only taxed on Luxembourg-source income, such as income from a permanent establishment or certain types of investment income.

Are there any tax incentives for businesses in Luxembourg?

Luxembourg offers several tax incentives, particularly for intellectual property and innovative activities. The IP regime provides an 80% exemption on qualifying IP income, effectively reducing the tax rate to around 5%. Additionally, companies can benefit from accelerated depreciation on certain assets, research and development tax credits, and favourable treatment for venture capital and private equity structures.

What is the tax treatment of dividends in Luxembourg?

Dividends received by Luxembourg companies from qualifying participations (generally 10% shareholding or €1.2 million acquisition cost) are exempt from corporate income tax under the participation exemption regime. Dividends paid by Luxembourg companies to non-resident shareholders may be subject to withholding tax at rates of 15% (EU residents) or up to 15% for non-EU residents, though this can be reduced under applicable tax treaties.

What is the process for registering for corporate tax in Luxembourg?

Companies must register with the Luxembourg tax authorities within one month of commencing business activities. Registration is done through the Business Registration Office (Guichet unique) and automatically triggers registration for corporate income tax purposes. Companies receive a tax identification number and are required to file their first tax return by 31 March following their first tax year.

What are the common pitfalls to avoid regarding corporate tax in Luxembourg?

Common mistakes include failing to meet substance requirements for tax benefits, inadequate transfer pricing documentation, and missing quarterly advance payment deadlines. Companies should also be careful about the application of the participation exemption regime, ensuring they meet all qualifying conditions. Another frequent issue is incorrectly calculating municipal business tax rates, which vary significantly between municipalities and can impact overall tax planning strategies.

Sources used in this article:

1. Baker McKenzie: Luxembourg Key Tax Changes for Companies in 2025
2. Tax Foundation: Corporate Tax Rates by Country 2024
3. Luxembourg Today: Taxes in Luxembourg Guide
4. PwC Tax Summaries: Luxembourg Corporate Taxes
5. PwC Tax Summaries: Foreign Tax Relief and Tax Treaties
6. Luxembourg Today: Tax Declarations for Companies
7. Guichet.public.lu: Electronic Tax Declaration
8. EY: Guidance on Administrative Fine
9. Gouvernement.lu: How to Start a Business in Luxembourg (PDF)
10. Invest in Luxembourg: Why Invest in Luxembourg
11. Luxembourg Trade and Invest: Global Competitiveness
12. Luxembourg.public.lu: Foreign Trade
13. Luxembourg.public.lu: Financial Hub
14. Lux-Airport: Economic Impact Study
15. Lux-Airport: Our Story
16. Luxembourg Trade and Invest: International Talent Pool
17. Chamber of Commerce: How to Create Your Company
18. Guichet.public.lu: Setting Up a Sole Proprietorship

Sources last checked 09/09/2025