Luxembourg Investment Income Guide 2026

Overview — Taxation of Investment Income

Investment income in Luxembourg benefits from a tax regime designed to attract international investment and holding activities. The treatment differs significantly between individual investors and corporate entities (such as SOPARFIs). For individuals, dividends are subject to a 15% withholding tax which is generally the final tax. Interest income is tax-free for individuals. For companies, the participation exemption eliminates double taxation on qualifying dividend and capital gain income. Luxembourg has over 85 double tax treaties providing reduced withholding rates.

Dividend Income — 15% WHT for Individuals, 0% Corporate Participation Exemption

Dividend taxation in Luxembourg depends on the recipient's status:

• Individuals: 15% withholding tax on dividends from Luxembourg companies (final tax — no additional IIT). Non-resident individuals may benefit from reduced rates under tax treaties.
• Companies (SOPARFI): Dividends are exempt under the participation exemption if the parent holds at least 10% (or acquisition cost ≥ EUR 1.2 million) for at least 12 months. The exemption is 100% of the dividend received.
• EU parent-subsidiary directive: 0% WHT on dividends paid to qualifying EU parent companies (≥10% holding).
• Treaty rate: 0%–5% WHT on dividends paid to treaty partners (typically 5% for ≥10% holdings, 15% for portfolio).

Interest Income — 0% Withholding Tax

Luxembourg does not impose withholding tax on interest payments:

• Domestic interest: 0% withholding tax on interest paid to both residents and non-residents. This applies to bank interest, bond interest, and private loan interest.
• Individuals: Interest income is generally tax-free for individual taxpayers (no reporting required for domestic interest).
• Companies: Interest income is included in taxable profit at the standard CIT rate (17% plus MBT).
• Non-residents: 0% WHT on interest paid to non-residents (no Luxembourg tax on interest paid abroad).

Royalty Income — 0% Withholding Tax

Royalties paid by Luxembourg entities are not subject to withholding tax:

• Domestic royalties: 0% withholding tax on royalty payments to residents and non-residents
• EU directive: 0% WHT under the EU Interest and Royalties Directive for associated EU companies
• IP Box regime: 80% exemption on qualifying net IP income for corporate recipients (effective tax rate ~4–5%)

Participation Exemption — 100% on Qualifying Dividends and CGT

The Luxembourg participation exemption is one of the most generous in the EU:

• Qualifying conditions: ≥10% equity holding (or acquisition cost ≥ EUR 1.2 million) and ≥12-month holding period
• Dividends: 100% exempt from CIT and MBT. No subject-to-tax test (subsidiary need not be subject to comparable tax).
• Capital gains: 100% exempt from CIT and MBT on gains from the sale of qualifying shareholdings
• No recapture: Expenses related to the participation (e.g., financing costs) may be partially disallowed (thin capitalisation rules apply)

Investment Funds — UCITS, SICAV, RAIF

Luxembourg is the leading EU fund domicile. Investment funds enjoy favourable tax treatment:

• UCITS funds: Generally exempt from CIT and NWT. Subject to an annual subscription tax (taxe d'abonnement) of 0.05% of net assets.
• RAIF (Reserved Alternative Investment Fund): Same tax treatment as regulated funds — exempt from CIT, subject to 0.01% subscription tax.
• SICAR (Investment Company in Risk Capital): Exempt from CIT on income from risk capital investments. Subject to NWT.
• Dividends paid by funds: 15% WHT for individuals (reduced to 0% for certain fund categories).

Foreign Investment Income

Luxembourg tax residents are taxed on worldwide investment income. Foreign dividends, interest, and other investment income must be reported on the annual tax return. A foreign tax credit (Crédit d'Impôt Étranger) is available for withholding taxes paid abroad. The credit is limited to the Luxembourg tax attributable to the foreign income. Luxembourg's extensive treaty network (85+ DTTs) provides reduced withholding rates from source countries.

FAQs

Is dividend income really tax-free for Luxembourg holding companies?

Yes, qualifying dividends received by a Luxembourg SOPARFI are 100% exempt from corporate income tax under the participation exemption. There is no requirement for the subsidiary to be subject to a comparable tax (unlike some other EU jurisdictions). This makes Luxembourg a premier holding company jurisdiction.

Do I need to report my foreign investment income in Luxembourg?

Yes, as a Luxembourg tax resident, you must report worldwide investment income on your annual tax return. However, domestic bank interest is generally not taxable for individuals and does not need to be reported.

Is there a wealth tax on investment portfolios for individuals?

No, Luxembourg does not impose a net wealth tax on individuals. The net wealth tax (NWT) applies only to corporate entities.

Disclaimer

This guide provides general information about Luxembourg investment income taxation 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 situation. InvestmentKit does not provide tax advice.