Sélectionner une page

Luxembourg’s taxation has a well-regarded tax regime that has made it a significant hub for multinational corporations. This article delves into how tax lawyer in Luxembourg income from foreign branches and subsidiaries, focusing on its legal framework, double taxation treaties, and practical implications for businesses operating in the Grand Duchy.

Legal Framework and Taxation Principles

Luxembourg’s taxation system is based on territoriality, meaning only income earned within its borders is subject to corporate tax. However, the income derived from foreign branches and subsidiaries is treated differently. Foreign branches are generally considered part of the parent company in Luxembourg. And their income is included in the parent company’s taxable base. This means that the profits earned by a foreign branch are taxed in Luxembourg. But credit is given for taxes paid abroad to avoid double taxation.

Luxembourg also employs participation exemption for dividends and capital gains derived from qualifying foreign subsidiaries. Under the participation exemption regime, dividends received from a qualifying subsidiary are exempt from corporate income tax. If the Luxembourg parent company holds at least 10% of the subsidiary’s share capital or has an acquisition price of at least €1.2 million. The subsidiary must be subject to a tax comparable to Luxembourg’s corporate income tax. Similarly, capital gains on the sale of shares in such subsidiaries are exempt if certain conditions are met. including a minimum holding period of 12 months.

Double Taxation Treaties

Luxembourg has an extensive network of double taxation treaties (DTTs) designed to prevent income from being taxed twice. These treaties typically follow the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, providing mechanisms for eliminating double taxation. Under these treaties, income from foreign branches and subsidiaries can benefit from tax relief through exemptions or tax credits.

For foreign branches, the treaties generally allow Luxembourg to tax the income, but credit is provided for the foreign taxes paid. This credit is calculated according to Luxembourg’s domestic tax laws but is limited to the amount of Luxembourg tax attributable to the foreign income. For subsidiaries, the treaties often ensure that dividends and capital gains from foreign sources are not taxed twice by providing exemptions or reduced withholding tax rates.

Luxembourg’s DTTs also include provisions for resolving disputes regarding double taxation, which can arise from differing interpretations of tax laws between treaty partners. These provisions typically involve mutual agreement procedures (MAPs), allowing the tax authorities of the contracting states to resolve disputes amicably.

Practical Implications for Businesses

For businesses operating in Luxembourg, understanding how foreign income is taxed is crucial for efficient tax planning and compliance. The inclusion of foreign branch income in the parent company’s taxable base requires meticulous record-keeping and documentation to ensure proper tax credit claims. Companies must maintain detailed accounts of foreign taxes paid and provide supporting documentation to the Luxembourg tax authorities.

The participation exemption regime offers significant tax planning opportunities. By strategically structuring their investments, companies can minimize their tax liability on foreign income. For instance, ensuring that foreign subsidiaries meet the qualifying criteria for participation exemption can lead to substantial tax savings. However, businesses must carefully monitor changes in tax laws both in Luxembourg and in the countries where their subsidiaries operate to maintain eligibility for these exemptions.

The extensive network of DTTs provides additional layers of tax planning opportunities. Companies can leverage these treaties to optimize their global tax position, reduce withholding taxes on dividends. And gain relief from double taxation. Engaging in regular consultations with tax advisors. Who specialize in international taxation can help businesses navigate the complexities of these treaties. And ensure compliance with both domestic and international tax obligations.


Luxembourg’s approach to taxing income from foreign branches and subsidiaries is designed to maintain its attractiveness as a hub for multinational corporations while ensuring compliance with international tax standards. The territoriality principle, participation exemption regime. And extensive network of double taxation treaties collectively provide a robust framework for managing foreign income taxation. For businesses, understanding and effectively utilizing these provisions is essential for optimizing their tax position and ensuring compliance. By leveraging Luxembourg’s tax regime and double taxation treaties, companies can efficiently manage their global tax liabilities. And enhance their operational effectiveness in the international market.

For more Articles click here !