Luxembourg: Double Tax Treaties
As of March 2021, Luxembourg has signed 88 double tax treaties, as shown in the table below. Also provided is the year that the most recent treaty between Luxembourg and the other territory went into force.
|Country||Year Effective||Country||Year Effective|
|Isle of Man||2013||Switzerland||1993|
|Jersey||2013||Trinidad & Tobago||2001|
|Laos||2012||United Arab Emirates||2005|
Broadly speaking, tax treaties stipulate that corporate entities must be charged tax in the country they are resident in (the treaties contain 'tie-breaker' clauses to resolve cases in which both countries assert residence). This holds true except when an entity which is resident in one country has a permanent establishment in the other country, in which case the income from that permanent establishment is taxed in the second country.
Individual taxation likewise follows residence, but in cases where income could be taxed twice, there is either a 'tie-breaker' clause or a provision offsetting tax paid in one country against tax due in the other on the same income, although the treaty with the US contains 'savings' and 'limitation of benefits' clauses which can negate the purpose of the treaty in some circumstances.
Tax treaties normally provide that withholding tax on dividends is at a lower rate than usual (15% rather than 25% for instance), and that when there is a substantial participation (usually 25% or greater) an even lower or even zero rate is applied. Likewise, reduced rates of withholding tax are applied to interest and royalty payments (Luxembourg doesn't apply withholding tax to interest in any case).
Tax paid in one country is normally allowed as a credit against tax due on the same income in the other country. Income from property is usually taxed in the country in which it is situated.
NB: This section gives some brief and general details about double tax treaties; it is essential to refer to the individual treaties with respect to any particular case or situation.
In the last few years, many treaties have been updated to reflect the BEPS MLI. This involves one of the signatory countries publishing a synthesised text of the tax treaty with new BEPS MLI provisions inserted.
Luxembourg is currently negotiating a double tax treaty with Kyrgyzstan and a treaty with Botswana has been approved but not yet signed.
On 18 February 2021, a protocol to the tax treaty with France entered into force. It enables the elimination of double taxation with respect to employment income. A protocols to the treaty with Tunisia also went into force in 2020, and protocols have also been signed with Albania, Kazakhstan and Russia.