Luxembourg offers a competitive tax framework for Shipowners and Investors
Tax Residence
A company is resident in Luxembourg if its legal seat or place of effective management is located in Luxembourg.
The legal seat is the social seat of the company as defined in its by-laws.
The place of effective management is where a company makes the key management and substantive commercial decisions necessary to conduct its business. It is determined based on factual circumstances.
Luxembourg double taxation treaties also generally assign sole competence for taxation of profits from the operation of ships in international traffic to the place of effective management. This is the default OECD Model Tax Convention position and extends to profits generated from pools and joint-ventures.
Double Taxation Treaties
At present, Luxembourg has concluded over 80 double taxation treaties:
| Andorra
Armenia Austria Azerbaijan Bahrain Barbados Belgium Brazil Brunei Bulgaria Canada China Croatia Cyprus Czech Republic Denmark Estonia Finland France Georgia Germany Greece Guernsey Hong Kong Hungary Iceland India Indonesia
|
Ireland
Isle of Man Israel Italy Japan Jersey Kazakhstan Laos Latvia Liechtenstein Lithuania Macedonia Malaysia Malta Maurice Mexico Moldova Monaco Mongolia Morocco Norway Netherlands Panama Poland Portugal Qatar Saudi Arabia Slovakia |
Romania
Russia San Marino Senegal Serbia Seychelles Singapore Slovenia South Africa South Korea Spain Sri Lanka Sweden Switzerland Tajikistan Taiwan Thailand Trinidad and Tobago Tunisia Turkey Ukraine United Arab Emirates United Kingdom United States Uruguay Uzbekistan Vietnam |
An updated list of double taxation treaties to which Luxembourg is party is available on the Luxembourg Tax Authority website (Administration des contributions directes).
Taxable Income
A resident company is taxed on its worldwide income unless exempted by a double taxation treaty.
Taxable income is calculated based on profit stated in the commercial balance sheet, subject to adjustments provided under Luxembourg law.
A non-resident entity is liable for corporate income tax on income generated in Luxembourg.
Corporate Income Tax
The effective tax rate for Luxembourg entities accredited as shipping companies is 19.26%. This includes a corporate tax rate of 18% on worldwide income and a further 1.26% levied as a contribution to the unemployment fund.
Income derived from the operation and leasing of seagoing vessels used in international traffic is exempt from municipal business tax otherwise applied to Luxembourg entities.
Luxembourg does not levy withholding tax on royalties, interest or service fees.
Net Wealth Tax
Luxembourg-resident companies and Luxembourg branches of non-resident companies are subject to a Net Worth Tax (NWT) of 0.5% of taxable wealth. Corporations whose registered office or central administration is located in Luxembourg are taxable on their global wealth. Non-resident corporations are only taxable on their Luxembourg wealth.
The taxable basis for NWT excludes qualifying shareholdings in the participation exemption regime.
Applicable NWT Rate
As of 1 January 2016, the following rates apply:
- 5% up to EUR 500 million;
- 05% over EUR 500 million.
Minimum NWT
Taxable Luxembourg-resident capital companies are subject to a minimum taxable net worth :
- The minimum NWT for resident companies whose total balance sheets exceed € 350,000, of which 90% or more consist of financial assets, transferable securities and cash at bank is € 4,815;
- The minimum NWT for resident companies not satisfying one of the above balance sheet thresholds varies between € 535 for a balance sheet total of € 350,000 or less and € 32,100 for a balance sheet total exceeding EUR 30 million.
Securitization vehicles incorporated as corporations, SICARs (Société d’Investissement à Capital a Risque), SEPCAVs (Société d’Epargne-Pension Capital Variable) and ASSEPs (Association d’Epargne-Pension) are also subject to the minimum NWT.
No minimum NWT applies to Luxembourg Permanent Establishments of non-resident entities.
NWT Reduction
Luxembourg-resident entities may apply for a NWT reduction for a given year provided they:
- Commit to enter an amount equivalent to 5 times the requested deduction into a special reserve account prior to the expiry of the following year; and
- Maintain the reserve on their balance sheet for the 5 years following the reduction request.
The deduction is limited to the amount of corporate income tax due prior to the application of any investment tax credits, including any employment fund contributions due the year before the tax was levied.
Luxembourg-resident shipping companies making capital-intensive vessel purchases can therefore still reduce their NWT liability where the application of investment tax credits leaves them tax neutral.
If the fiscal unity regime is applied, the global net wealth tax deduction at the individual group company level cannot exceed the amount of tax due prior to deductions for the relevant tax year. The tax deduction is not granted for the amount equivalent to the minimum tax due, increased by the contributions for the employment fund (by each of the companies under fiscal unity in the group)
If the company distributes whole or part of the reserve before the end of the 5-year period, the corporate income tax for the relevant tax year is increased by 1/5 of the distributed reserve. The above provisions also apply to taxable Permanent Establishments of non-resident companies maintaining separate accounts.