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Luxembourg: Country and Foreign Investment

Relationship with the EU

This page was last updated on 17 June 2020.

Luxembourg was one of the six founding members of the EU, and has high rates of personal and corporate taxation, so it cannot be called 'offshore' as such. However, the Luxembourg holding company form, created in 1929, and the more recent investment fund form, traditionally both exempt from all taxes, made the country as attractive as many out and out 'offshore' jurisdictions. In 2007, the 1929 regime was replaced at the EU's insistence.

In May 2008, Switzerland and Luxembourg announced that while they supported the European Union's efforts to ensure that investment income is properly taxed under the Savings Tax Directive, they would not be persuaded by Brussels to adopt exchange of information with other member states for tax purposes.

In December 2008, the European Commission asked Luxembourg to amend legislation which it argued incorrectly transposed certain provisions of the savings tax directive.
The STD seeks to ensure that paying agents (banks, financial institutions etc) either report interest income received by taxpayers resident in other EU member states or levy a withholding tax on the interest income received, and according to the Commission, Luxembourg cannot provide an exemption from withholding tax in situations other than those expressly provided by Article 13 of the directive.

This is the so-called "voluntary disclosure" procedure which allows the beneficial owner expressly to authorise the paying agent to report information to tax authorities and the certificate procedure which ensures that withholding tax is not levied when the beneficial owner presents to his paying agent a certificate drawn up by his member state of residence for tax purposes.

However, Luxembourg also gives an exemption from withholding tax to interest payments made to beneficial owners who benefit from "non-domiciled resident" status in their country of residence. This status is granted by some member states to residents who are generally exempt from income tax in their state of residence or provided the interest payments, in the absence of a transfer to the state of residence, are not subject to tax in that state.

Many EU institutions are based in Luxembourg, not least the European Commission itself, the Court of Justice, the Secretariat of the Parliament, the EIB, and the European Court of Auditors.



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