Taxes

Withholding tax in Luxembourg in 2025

If you are considering investing in Luxembourg in 2024, it is important to understand the impact of recent changes to withholding tax rates on your potential profits. This guide will provide you with the essential information you need to navigate Luxembourg's tax system, including details on dividends and royalties, as well as details on available exemptions and tax treaties. Don't miss out on these crucial insights!

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Luxembourg's tax system is one of the most tax-friendly in the world. What is withholding tax expense, and who should pay it? Let's compare the basic rates in Luxembourg and other European countries and tell you how you can reduce your tax in the Grand Duchy.

What is withholding tax in Luxembourg in 2025

Withholding tax (WHT) — is a government-imposed tax that is deducted at the source of income, such as salary, dividends, or interest, before the recipient receives the net amount. In Luxembourg, it is only applied in certain cases, unlike other European countries, where the tax authorities withhold it from all sorts of income. Withholding tax is one of the most important taxes in most countries of the world, including the Grand Duchy. It usually has several purposes.

Revenue Collection: simplifies the tax collection process, in addition, withholding tax is an important source of income for the Luxembourg government;
Timely tax payment: reduces opportunities for tax evasion;
Taxpayer compliance: compliance with legal requirements.

As already mentioned, withholding tax is levied on several types of passive income.

Dividends: tax is withheld from dividends paid to shareholders.
Interest: tax is withheld from interest received on loans, bonds or bank deposits.
Royalties: withheld from royalty payments for the use of intellectual property.
Non-salary compensation: withheld from payments made to independent contractors, freelancers, or self-employed individuals.

In Luxembourg, a withholding tax is only levied on dividends and interest received or paid by natural persons and legal entities that meet certain conditions.

Withholding tax rates in 2025

From a tax perspective, Luxembourg is a very attractive country. Although the tax system is considered one of the most complex in the world, many tax rates are much lower than in other European countries. In addition, the Grand Duchy is traditionally considered the financial hub of Europe. Taxes in Luxembourg are levied by tax administrations depending on the nature of the tax. The Administration des Contributions Directes is responsible for direct taxes, including withholding tax.

Withholding tax is not withheld from all residents and non-residents. Non-residents are taxed at the full rate only if there is no double taxation agreement between Luxembourg and their country of residence. If such an agreement exists, a reduced rate applies. So, what are the current tax rates?

Standard Rates

15% on dividends and 20% on Interest paid by a Luxembourg paying agent to resident individuals.

Reduced Rates

From 5 to 15% on dividends depending on the recipient’s country of residence.

Exemptions

WHT is not levied on dividends paid by a Luxembourg subsidiary if a list of certain conditions is met. You can read more about these conditions here.

Comparison with other countries

Withholding tax in Luxembourg is one of the lowest in Europe. For comparison, here is a small table with basic tax rates in five European countries. It includes the dividend withholding tax rates by country.

Country	Other countries compared to Luxembourg dividend withholding tax rate. Residents/non-residents	Other countries compared to Luxembourg Interest withholding tax rate. Residents/non-residents	Other countries compared to Luxembourg Royalties withholding tax rate. Residents/non-residents
Luxembourg	15%/0-15%	0%	0%
Germany	25%/25%	25%/0%	0%/-15 %
Belgium	30%	30%	30%
France	0/12,8% or 25%	0/0	25/25%
United Kingdom	0%	20%	20%

Tax treaties and application process

The WHT tax rate in Luxembourg for non-residents can be reduced from the basic 15% to 10% or even 0%. To do this, a number of conditions must be met. For example, in accordance with Luxembourg law, withholding tax is not levied on dividends paid to a Luxembourg qualifying subsidiary or to a Swiss resident joint-stock company that is subject to Swiss CIT without benefiting from any Luxembourg dividend withholding tax exemption.

Double taxation

To avoid double taxation countries conclude tax agreements. Luxembourg has several tax agreements with other countries. An example of this is the US - Luxembourg tax treaty about withholding interest This kind of treaties may reduce or cancel any withholding tax at source in Luxembourg. Where the conditions of the Luxembourg participation exemption are not met, a 15% withholding tax is levied on dividends distributed by a Luxembourg resident fully taxable corporation.

Compliance

To comply with withholding taxes a number of actions have to be taken, several documents filled in and filed at the proper authorities. Actions to take include: fill in a tax return, calculate the tax payable, and write a cover letter.

Reporting obligations

The tax return must be filed with the relevant tax office annually. Non-residents file a return in Luxembourg and at their place of residence to avoid double taxation. WHT dividend returns must be filed within eight days after the dividend distribution. The annual tax return or annual WHT adjustment form must be filed by 31 December of the year following the year of receipt of the income.

How to apply to reduce the WTH

To reduce the amount of withholding tax, you need to take the following steps.

Determine eligibility. If possible, Luxembourg dividend withholding may be reduced under its double tax treaties.
Understand the treaty position.
Gather the necessary documents.
- form 901bis;
- Passport, valid for at least 3 months after the expiration date of the requested visa. With at least two blank pages.
- a copy of the bank statement of the beneficial owner documenting the payment of the dividends;
- a cover letter.
Fill in the forms mentioned above: the name of the beneficiary, the name of the company, address, place of residence, the company paying the dividends, the number, and type of shares, the amount of dividends, and the date of their payment. Information on the withholding tax, (according to Luxembourg legislation or Applying the convention) and its amount; to be exempted/to be refunded.
File the completed forms. As the most common tax treaty rate on dividend income is equal to Luxembourg’s domestic dividend withholding tax rates, refunds of Luxembourg withholding tax will likely only apply in exceptional situations for certain specific investors (like pension funds). These investors may be entitled to a full exemption under a double tax treaty.