Corporate income tax is an assessment levied by the government on the profit made by certain corporations including capital companies during a financial year.
Who pays tax?
Corporate income tax is paid by different companies with peculiar characteristic in regard to their setup. Some of these companies include;
- single member or multiple membership public limited companies (SA) with at least 100 partners;
- simplified shareholder companies (with at least 2 partners);
- single-member limited liability companies or limited liability companies with several partners; and single
- member European companies or European companies with several partners.
However, companies that acquire fund from the public for investment according to the principle of risk diversification are excluded from corporate income task. They include;
- Open-ended investment company (SICAV), i.e. a public limited company that major variable capital;
- Closed-ended investment company (SICAF), i.e. a common-law public limited excluding investment policy.
THE PRINCIPLE OF TERRITORIALITY TAXATION IN LUXEMBOURG
According to the principle of territorial taxation, only companies with close affiliation with Luxembourg and have offices within this region have unlimited tax liability while those with offices outside but generates fund to Luxembourg have their tax liability limited.
This is valid for resident companies, i.e. a company that has its registered office or center of effective management in Luxembourg.
- Resident Company: Income from a resident company is taxed globally. However, Luxembourg tax is removed from a country’s foreign income is generated in a country that has an agreement with Luxembourg to eliminate double taxation.
- Non-resident company: Tax are only levied on non-resident companies’ local income in Luxembourg
APPLICABLE RATES
Tax rate and Taxation minimum
Corporate income tax levied on resident and non-resident companies in 2019 are 15% and 17% on income that is not beyond EUR 17500 and EUR 200000 respectively with an additional 7% as a contribution to employment fund. While minimum tax is only subjected to some companies based on their annual closing account balances.
TAX RETURN AND PAYMENT
- Accounting and tax return obligations of the company
Companies are obliged to declare their taxable income to Luxemburg Inland revenue to calculate the amount of tax to be paid and set payment conditions. And also, submit an income declaration online with the online assistant on MyGuichet.lu. or in paper format, if excluded from online submission.
A tax return must, however, be submitted together with accounting documents used for the company’s result calculation which include a balance sheet. the profit and loss account, table of fixed assets and depreciation, the financial statements of the overhead expenses. However, Luxembourg Inland Revenue has the authority to request additional supporting documents.
- Payment of tax Provisional advance payments
The law requires a downpayment every quarter from Companies sex provisionally on the previous return i.e. previous financial year. However, companies can request an adjustment.
- Balance payable
Return tax is received by companies which shows the deadline and remaining amount to be paid for the current financial year after considering the provisional payments made. In case of negation tax return, refunds are paid back to the company account or deducted from the remaining amount to be paid to the tax authorities.
EXEMPTION
You can benefit from a tax exception for the period of 8 years and 25% profit if you set up new establishments which contribute immensely to the structural development, regional economic growth or better geographical economy distribution.
