International tax advice

EC Directives

Luxembourg has signed with all European countries some Directives which aim to largely eliminate double taxation and reduce withholding taxes. 

PARENT SUBSIDIARY DIRECTIVE (PSD)

The principle is that any country has the right to tax certain kinds of income and the other contracting state agrees to allow an exemption for that income or a tax credit on the taxes paid abroad.

SPF or 1929-type Holding companies are excluded of benefits of these Treaties (because of the fact that they are not subject to income tax), but normal tax-liable companies are fully covered. These include companies with the SOPARFI status, which are fully taxable in Luxembourg.

In 1990 the European Union adopted directives under which the various tax laws are to be harmonized. Luxembourg has passed these directives directly into its internal law and they constitute a common regime, valid for all European Companies (parent-subsidiaries): all the dividends distributed within a group of companies are tax-exempt (0% withholding tax is applicable).

Significant amounts can be paid within a groupe of companies being tax-exempt: dividends received, capital gains on sales and payments receive upon dissolution of subsidiaries.
The dividends paid by a Luxembourg company are normally taxed at source at a rate of 15% from 2007) - From 2009 dividends paid by a Luxembourg Company to a company resident in a double tax treaty countr is exempt of withholding taxes - subject to some conditions (other exemptions or reduction are avaialble depending on the tax treaties) 

But it should be noted that no withholding tax is due on the reserves when a Luxembourg company is dissolved or when its registered office is transferred abroad.

INTEREST - ROYALTIES DIRECTIVE (IRD)

This directive came into effect on the 1st January 2004 (See text).

Withholding taxes are reduced to zero when royalties or interests due/payable to associated companies (>25% of participation), provided that their headquarters are situated in the European Union.

For Luxembourg, the legislation also stipulates that no withholding taxes are due on any payment of interests / royalties to foreign entities (including the the 1929-type Holding companies - SPF ).

MERGER & ACQUISITION DIRECTIVE (MAD)

This Directive provides to exempt of taxation any contribution in kind of a permanent establishment to another company with registered office in Luxembourg.
It also provides the exemption of taxes on contribution in kind of shares to a SOPARFI established in Luxembourg. One can then contribute in kind all the share of an EU company without any (personal / corporate ) taxation on the (latent) capital gain.
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