Luxembourg Corporate Tax Guide 2026

Overview — Corporate Tax in Luxembourg

Corporate income tax in Luxembourg is administered by the Administration des contributions directes (ACD). Resident companies are taxed on worldwide income. Non-resident companies with a permanent establishment (PE) in Luxembourg are taxed on Luxembourg-source income attributable to the PE. The corporate tax year follows the calendar year unless the company uses a different fiscal year. Corporate tax returns (Déclaration de l'IRC) must be filed by 31 May of the following year. Luxembourg applies a classical corporate tax system with a comprehensive participation exemption regime.

Corporate Income Tax (CIT) — 17%

The standard CIT rate for 2026 is 17%, broken down as follows:

• Base CIT rate: 15% of taxable profit
• Solidarity surcharge (Contribution au Fonds de l'Emploi): 2% of the base CIT (equal to 0.30% of taxable profit)
• Total CIT rate: 15% + (15% × 2%) = 15.30% on profit, effectively 17% before municipal tax interaction

The solidarity surcharge was introduced to fund employment measures and is calculated on the base CIT amount. The minimum CIT is EUR 1,500 per year for most companies.

Municipal Business Tax (MBT) — 6.75% to 11.25%

The municipal business tax (Impôt Commercial Communal, ICC) is a local tax levied by each commune on business profits. Key features:

• Rate formula: MBT rate = 3% × communal multiplier (ranging from 225% to 375%)
• Luxembourg City: 3% × 225% = 6.75%
• Other communes: 3% × up to 375% = 11.25% (some communes apply rates between)
• Deductibility: MBT is deductible for CIT purposes, which reduces the effective combined rate

Effective Combined Tax Rate

The effective combined corporate tax rate is calculated as the CIT plus the non-deductible portion of MBT:

• Luxembourg City (6.75% MBT): Effective rate ≈ 24.94%
• Mid-range communes (9% MBT): Effective rate ≈ 26.94%
• Highest communes (11.25% MBT): Effective rate ≈ 28.94%

These rates are competitive within the EU and make Luxembourg attractive for holding companies and operational headquarters.

SOPARFI — Standard Holding/Operating Company Regime

The SOPARFI (Société de Participations Financières) is the standard Luxembourg corporate vehicle used for holding and financing activities. Key features:

• Subject to standard CIT, MBT, and NWT (net wealth tax)
• Benefits from the participation exemption regime for qualifying dividends and capital gains
• No withholding tax on interest and royalty payments to EU/EEA residents
• Extensive treaty network (85+ DTTs) reduces WHT on outbound payments
• No CFC rules that restrict holding structures (limited CFC rules for tax avoidance cases)

IP Box Regime — 80% Exemption

Luxembourg's IP Box regime (also known as the intellectual property regime) provides an 80% exemption on qualifying net IP income:

• Qualifying IP: Patents, copyright-protected software, trademarks, designs, and models
• Exemption: 80% of net IP income (gross IP income minus directly related expenses) is exempt from CIT and MBT
• Effective rate: Qualifying IP income is effectively taxed at approximately 4–5% CIT (before MBT)
• Nexus requirement: The regime follows OECD nexus approach — the taxpayer must have conducted the qualifying R&D activities that generated the IP
• Grandfathering: The regime was introduced under the 2024 Finance Law, replacing the previous IP regime

Participation Exemption

Luxembourg's participation exemption provides 100% relief on qualifying dividends and capital gains:

• Dividends: 100% exemption if the parent holds at least 10% (or acquisition cost ≥ EUR 1.2 million) of the subsidiary's equity for at least 12 months
• Capital gains: 100% exemption on gains from the sale of qualifying participation shares under the same conditions
• No subject-to-tax test: Luxembourg does not require the subsidiary to be subject to a comparable tax (unlike some EU jurisdictions)
• Anti-abuse: The exemption may be denied if the participation is held with the main purpose of benefiting from the regime (substance requirements apply)

Loss Carryforward

Tax losses can be carried forward indefinitely (no time limit). There is no carryback of losses. The loss offset is generally unrestricted. However, losses may be forfeited upon a change of ownership if the company does not continue the same business activity (anti-trafficking rules).

FAQs

What is the minimum corporate tax in Luxembourg?

The minimum CIT is EUR 1,500 per year for most companies. Companies with qualifying assets exceeding EUR 350,000 pay a higher minimum based on total assets (up to EUR 30,000 for large balance sheets). The minimum MBT is also EUR 1,500 in most communes.

Is Luxembourg's corporate tax system competitive for holding companies?

Yes, the SOPARFI regime combined with the participation exemption (100% on dividends and capital gains), zero WHT on interest and royalties, extensive treaty network (85+ DTTs), and no CFC rules make Luxembourg one of the most competitive EU jurisdictions for holding and financing companies.

Are there transfer pricing rules in Luxembourg?

Yes, Luxembourg has transfer pricing rules aligned with OECD guidelines and the EU Transfer Pricing Directive. Documentation requirements apply for transactions with related parties. Country-by-country reporting (CbCR) applies for groups with consolidated revenue over EUR 750 million. Advance pricing agreements (APAs) are available.

Disclaimer

This guide provides general information about Luxembourg corporate tax (CIT) for the 2026 tax year. Tax laws and rates may change. Always consult with a qualified Luxembourg tax advisor (conseil fiscal) or the ACD directly for advice specific to your business. InvestmentKit does not provide tax advice.