Corporate Tax in Luxembourg: What Owners of a Luxembourg Company Need to Know
If you are considering a Luxembourg shelf company or planning a new Luxembourg company, corporate income tax (CIT) will shape your results more than almost any other factor. This guide covers the rates, the main tax regimes and the points that matter most when you set up a Luxembourg company.
Tax residence decides what gets taxed
Luxembourg taxes by residence. A company that is tax resident in Luxembourg is liable for CIT on its profits from around the world, subject to exemptions for certain types of income. A non-resident entity is taxed only on income it earns from Luxembourg sources.
This distinction matters from day one. When you buy a Luxembourg shelf company, its residence status determines how much of your income falls within the reach of the Luxembourg tax authorities.
Current Luxembourg corporate income tax rates
Luxembourg CIT uses a reduced rate for smaller profits and a standard rate above that:
| Taxable income | CIT rate (2026) |
|---|---|
| Up to EUR 175,000 | 14% |
| EUR 175,000 to EUR 200,000 | Transitional band |
| Above EUR 200,000 | 16% |
The lower rate is a real advantage for start-ups, small businesses and newly acquired shelf companies, because it lets you keep more of your early profits for reinvestment.
CIT is not the only profit tax. A 7% solidarity surcharge applies on top of CIT, and municipal business tax is added depending on where the company has its registered seat. In Luxembourg City, with a municipal business tax rate of 6.75%, the combined rate on profits above EUR 200,000 is 23.87%.
The IP box: an effective rate of about 5% on qualifying IP income
The Luxembourg IP box is one of the most attractive Luxembourg tax incentives. It gives an 80% exemption from CIT and municipal business tax on qualifying net income from eligible intellectual property, which brings the effective rate on that income to about 4.99%.
- Eligible assets: patents and copyrighted software.
- Net income: the exemption applies to net income, so related expenses reduce the benefit.
- Nexus approach: the regime follows the OECD modified nexus approach (BEPS Action 5), so the benefit depends on the share of R&D carried out by the company itself or by unrelated parties.
- Conditions: the assets must be self-developed or improved, and you need documentation that tracks the R&D expenditure to the income.
Investment fund and wealth management regimes
Luxembourg is Europe’s leading centre for investment funds, and its regimes for them differ from the ordinary CIT rules.
Undertakings for collective investment (UCITS, UCIs and SIFs)
Regulated investment funds are generally exempt from CIT, municipal business tax and net wealth tax. Instead, most pay an annual subscription tax (taxe d’abonnement) on their net assets, at a reduced rate for certain institutional and money market funds. Distributions by these funds are generally not subject to Luxembourg withholding tax.
Reserved alternative investment funds (RAIFs) and risk capital companies (SICARs)
Reserved alternative investment funds and risk capital companies (SICARs) serve private equity, venture capital and other alternative strategies. Their tax treatment depends on the legal form and regime chosen, and in many cases income from risk capital investments is exempt, while other income may be taxable. Check the exact conditions before choosing the regime.
Private wealth management companies (SPFs)
The société de gestion de patrimoine familial (SPF) is a vehicle for managing the financial assets of private individuals and family wealth structures. It is exempt from CIT, municipal business tax and net wealth tax, but it pays an annual subscription tax, with a minimum of EUR 1,000, and is subject to strict conditions on who may hold it and what it may do. It is not available for commercial activity.
Net wealth tax
Unlike many countries, Luxembourg levies an annual net wealth tax on companies. The rate is 0.5% of net assets (0.05% on the part above EUR 500 million). Qualifying participations are generally excluded from the taxable base, which is why holding companies usually pay little more than the minimum.
The minimum net wealth tax depends on the company’s balance sheet total and is EUR 535, EUR 1,605 or EUR 4,815. This applies even where the company makes no profit, so it is part of the running cost of every Luxembourg company.
Municipal business tax and national taxes
Luxembourg has both national and municipal layers of corporate tax. The municipal business tax rate varies by municipality, so the exact combined rate depends on the registered seat of the company. This is worth knowing when you choose your registered address.
No tonnage tax regime
Luxembourg does not apply a tonnage tax regime of the kind found in some other European countries. Shipping companies are taxed under the ordinary rules, so check the position with an adviser if your business involves vessels.
Set up your Luxembourg company with us
Whether you want a ready-made Luxembourg shelf company or prefer to form a new Luxembourg company or branch through our group, we can explain how Luxembourg corporate tax applies to your plans. Contact us to discuss your requirements.