Luxembourg: Domestic Corporate Taxation
Scope of Corporate Income Tax
Corporate Income Tax, or Impot sur le Revenu des Collectivites (IRC), was introduced during the German occupation in 1940/41 as Körperschaftssteuer. In accordance with the general rule that a tax once introduced never dies, the Luxembourg tax authorities decided to keep this interesting German innovation after the war, although it was substantially modified by the Loi du 4 decembre 1967 portant sur l'impot sur le revenu.
Resident companies are taxed on their world-wide income. Residence for this purpose means that the business has its main establishment in Luxembourg, that is, the place from which it is managed, where it holds its general meetings, and where it performs central administrative functions. Non-resident companies having a 'permanent establishment' in Luxembourg (defined as a place of business or fixed equipment, which would normally include branches) pay income tax on their income originating in Luxembourg.
IRC applies to corporate entities, which includes SAs, SARLs, and Partnerships Limited by Shares (Societes en Commandites par Actions). Other types of partnership are considered fiscally transparent, here as elsewhere, so that tax is assessed directly on the partners rather than the partnership as such.
There are some tax incentives available for investors who are considered to be supporting the economic development of the country under the laws of 28th July 1923, 27th July 1972, and the Tax Reform Law of 6th December 1990. These apply to specified industries and investment situations, and apply equally to Luxembougeouis and foreign investors.
NB: A Luxembourg 'holding' company, which until 2007 was the form normally used for offshore operations, is not subject to IRC. See Offshore Legal and Tax Regimesfor details of the taxes payable by 'holding' companies. See Forms Of Company for details of changes to the holding company regime in 2007.