Taxation of an Investment Fund in Luxembourg (2024)

FAQs

How are investment funds taxed in Luxembourg? ›

Tax framework

Luxembourg investment funds (UCITS and non-UCITS) are not subject to income / capital gains taxes in Luxembourg. Withholding tax levied at source on income received by a Luxembourg UCI is technically non-refundable.

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).

If you receive a distribution from a fund that results from the sale of a security the fund held for only six months, that distribution is taxed at your ordinary-income tax rate. If the fund held the security for several years, however, then those funds are subject to the capital gains tax instead.

Luxembourg SICAV-SIF SCA

Subject to an annual subscription tax of 0.01% of its NAV.

The country's tax year runs from 1 January to 31 December. Expats must pay income tax on their earnings, whether they work for a company or are self-employed. Tax rates range from 0% to 42%. Workers are given a tax class based on their marital and residency status.

Luxembourg has a progressive income tax system.

Income tax rates range from 0 to 42%. The highest bracket of 42% applies to income in excess of 200,004 euros a year. The Fonds pour l'Emploi rate increase raises the overall effective rate to a maximum of 45.75%, for incomes of €200,005 or more.

Luxembourg's participation exemption regime provides for an exemption from income, withholding and net wealth tax for qualifying investments held by qualifying entities. The exemption from income tax is extensive, covering dividends, capital gains and liquidation proceeds.

Under Luxembourg accounting and tax principles, interest income is recognised on an accrual basis and is fully subject to CIT and municipal business tax.

Dividends paid out by Luxembourg or foreign companies and received by a resident taxpayer must be reported on the latter's tax return and are subject to ordinary progressive tax rates (ranging from 0 % to 42.80 % or 43.60 %). Dividend income is also subject to a 1.4 % long-term care insurance contribution.

On the flip side, capital gains are considered to be short-term or long-term based on how long the fund held the securities being sold. So even if you recently bought into the fund, you'll pay the preferential long-term capital gains rate (as long as the fund held the securities for more than a year).

How much of investment income is taxable? ›

Taxable income: Long-term capital gains and qualified dividends are generally taxed at special capital gains tax rates of 0%, 15%, and 20% depending on your taxable income.

According to modern studies, the § Top 10 tax havens include corporate-focused havens like the Netherlands, Singapore, Ireland, and the U.K., while Luxembourg, Hong Kong, the Cayman Islands, Bermuda, the British Virgin Islands, and Switzerland feature as both major traditional tax havens and major corporate tax havens.

Tax rate. Corporate income tax for resident and non-resident companies has been set at the following rate in 2019: 15 % where the taxable income does not exceed EUR 175,000; 17 % where the taxable income exceeds EUR 200,000.

Luxembourg taxation rates range from 0% to 42%, depending on how much you earn. Essentially, your salary after tax will be shaped by how much you earn, as you will be taxed accordingly. The first €11,265 of any earnings received will be tax-free. Anything more than €200,004 will be taxed at 42%.

Also, many sovereign wealth and large pension funds have established investment platforms, holding companies, and feeder funds in Luxembourg because of the regulatory controls, tax and legal frameworks, and ability of doing business there.

Fund administration is a regulated activity in Luxembourg and either performed by an authorised Luxembourg management company (ManCo) or an alternative investment fund manager (AIFM), or delegated to an administrative agent authorised by the CSSF under the Law of 5 April 1993 on the financial sector (Financial Sector ...

In summary, Luxembourg resident companies are in principle subject to net wealth tax levied annually at a rate of 0.5% on their net asset value, with any portion of such wealth exceeding EUR 500,000,000 being subject to a rate of 0.05%. The law also provides for minimum net wealth tax rules derogating to the principle.