Abolishment of net worth tax
The law of 21 June 2005 provides for the abolition of net worth tax for individuals as of 1 January 2006. This is an important change in the law, as previously Luxembourg tax authorities applied a 0,5% net wealth tax on individuals. This abolishment is certainly interested for foreign individuals residing in countries who do have a wealth tax on individuals (such as France).
Final withholding tax of 10% on savings income for Luxembourg residents
General
The law of 23 December 2005 introduces a final withholding tax of 10% on interest income for individuals. According to the law, any Luxembourg paying agent that pays interest to a Luxembourg resident beneficial owner must apply a final withholding tax of 10%.
Who will benefit from the 10% withholding tax?
Luxembourg residents (individuals).
What income is affected by the withholding tax?
The 10% withholding tax applies to income as defined in the Law of 21 June 2005 incorporating the Savings Directive, to the extent the income is paid or allocated by a Luxembourg paying agent to a resident individual. The withholding is final in the sense that no further tax is payable on the income, the interest is not required to be reported in the taxpayer’s tax return and it is not taken into account when calculating the average rates of tax on the income.
Which income will be affected by the withholding tax?
- interests on current accounts (under certain conditions);
- interests on saving accounts;
- interests on non-grandfathered bonds (bonds issued after 1 March 2001);
- etc …
Which income is not affected by the withholding tax?
- dividends;
- interests on grandfathered bonds (bonds issued before 1 March 2001);
- interests received from a foreign country;
- etc …
Banking secrecy
The banking secrecy is maintained as there is a withholding tax and no exchange of information.
Practical relevance of the law and tax advantages of becoming a Luxembourg resident
The importance of the Law is that Luxembourg residents will be able to benefit from a lower withholding tax (namely 10%) than for instance foreign individuals receiving interest payments. Luxembourg paying agents are required to withhold tax at a rate of 15% on certain interest income paid to beneficial owners (individuals) residing in other EU Member States as well in some non-EU countries, unless these individuals opt for the exchange of information or provide the paying agent with a certificate issued by the tax authorities of the home countries.
Becoming a Luxembourg resident can be, besides the advantages set out above, interesting inter alia for the following reasons, namely (i) the absence of direct-line inheritance duties, (ii) a low gift tax of only 1,8%, (iii) an income tax rate among the lowest in Europe (progressive rate between 0% and 38,95%), (iv) an exemption of capital gains tax on the transfer of shares (insofar a holding period of more than 6 months and a participation of a maximum of 10% of the capital of the company).
Do not hesitate to contact us for any further details and advices.
Abolishment of net worth tax
Final withholding tax of 10% on savings income for Luxembourg residents
General
The law of 23 December 2005 introduces a final withholding tax of 10% on interest income for individuals. According to the law, any Luxembourg paying agent that pays interest to a Luxembourg resident beneficial owner must apply a final withholding tax of 10%.
Who will benefit from the 10% withholding tax?
Luxembourg residents (individuals).
What income is affected by the withholding tax?
The 10% withholding tax applies to income as defined in the Law of 21 June 2005 incorporating the Savings Directive, to the extent the income is paid or allocated by a Luxembourg paying agent to a resident individual. The withholding is final in the sense that no further tax is payable on the income, the interest is not required to be reported in the taxpayer’s tax return and it is not taken into account when calculating the average rates of tax on the income.
Which income will be affected by the withholding tax?
- interests on current accounts (under certain conditions);
- interests on saving accounts;
- interests on non-grandfathered bonds (bonds issued after 1 March 2001);
- etc …
Which income is not affected by the withholding tax?
- dividends;
- interests on grandfathered bonds (bonds issued before 1 March 2001);
- interests received from a foreign country;
- etc …
Banking secrecy
The banking secrecy is maintained as there is a withholding tax and no exchange of information.
Practical relevance of the law and tax advantages of becoming a Luxembourg resident
The importance of the Law is that Luxembourg residents will be able to benefit from a lower withholding tax (namely 10%) than for instance foreign individuals receiving interest payments. Luxembourg paying agents are required to withhold tax at a rate of 15% on certain interest income paid to beneficial owners (individuals) residing in other EU Member States as well in some non-EU countries, unless these individuals opt for the exchange of information or provide the paying agent with a certificate issued by the tax authorities of the home countries.
Becoming a Luxembourg resident can be, besides the advantages set out above, interesting inter alia for the following reasons, namely (i) the absence of direct-line inheritance duties, (ii) a low gift tax of only 1,8%, (iii) an income tax rate among the lowest in Europe (progressive rate between 0% and 38,95%), (iv) an exemption of capital gains tax on the transfer of shares (insofar a holding period of more than 6 months and a participation of a maximum of 10% of the capital of the company).
Do not hesitate to contact us for any further details and advices.
