Corporate tax in Luxembourg: profit, net wealth and annual returns

An ordinary Luxembourg resident company generally faces three direct taxes. Corporate income tax applies to taxable income, municipal business tax to adjusted business profit and net wealth tax to taxable net assets. The accounting result supplies the starting information, but it is not the final tax base. Losses, exemptions, financing and the composition of the balance sheet can change the result substantially.

This framework concerns fully taxable companies such as an ordinary SA or SARL, whether operating a business or holding investments. Tax-transparent partnerships, exempt investment vehicles and the additional rules for large groups subject to the global minimum tax require separate analysis. The label SOPARFI, commonly used for Luxembourg holding companies, does not itself create an exemption from corporate tax.

Three taxes answer different questions

CIT and MBT relate to income over a period. NWT uses a balance-sheet assessment, generally at 1 January. A company with exempt investment income may still have a net wealth tax liability. A company with little taxable wealth may still have substantial taxable operating profit.

From the accounts to taxable income

The tax reconciliation, the schedule that links the accounting result to taxable income, explains the differences between them. It identifies exempt income, expenses that cannot be deducted, differences in asset values and other adjustments required by law. Income tax charges themselves cannot simply be deducted in calculating the profit on which those taxes are due.

An expense recorded in the accounts is not automatically deductible. Its business purpose, supporting evidence and applicable restrictions matter. Charges between related parties must also be on appropriate terms. For financing, the interest limitation rule applies a further test to borrowing costs that survive the other deduction rules.

Exempt income needs the same care. The participation exemption, which can exempt dividends and gains from qualifying shareholdings, depends on conditions about the company held, the size of the holding and how long it is held. Associated expenses may affect the taxable result even where the corresponding income is exempt. Treating all investment income as tax-free would conceal these adjustments.

The reconciliation should therefore remain understandable from the underlying accounts. A single unexplained adjustment for “tax differences” makes it difficult to connect the return with the transactions and with the following year’s opening balances.

CIT and the employment fund surcharge

Under the rates applicable from 2025, CIT is 14% where taxable income does not exceed EUR 175,000. Between EUR 175,000 and EUR 200,000, the calculation is EUR 24,500 plus 30% of the excess over EUR 175,000. Above EUR 200,000, CIT is 16% of taxable income. These are income thresholds, not turnover thresholds.

A surcharge for the employment fund adds 7% of the CIT amount. At the standard 16% CIT rate, the two together represent 17.12% of the relevant taxable income before credits. The surcharge is not an additional seven percentage points on profit.

Municipal business tax has its own calculation

MBT starts from business profit, with the specific additions and deductions described by the Luxembourg direct tax authority (ACD). Its base can therefore differ from the CIT base. For corporate taxpayers, a EUR 17,500 allowance is first deducted from this base.

The remaining amount is multiplied by 3%, then by the rate set by the municipality, known as the municipal multiplier. In Luxembourg City, the 225% multiplier produces a 6.75% nominal rate on that MBT base. Other municipalities can produce a different rate.

The commonly quoted 23.87% combined nominal rate adds 16% CIT, its 1.12% surcharge and 6.75% MBT for Luxembourg City. It is a useful reference at the standard CIT rate, but multiplying accounting profit by 23.87% does not reproduce a tax return. Separate bases, the MBT allowance, losses and credits can change the actual amount. NWT is outside that percentage.

Losses must be tracked by year and by tax

For CIT, qualifying losses arising from financial years ending after 31 December 2016 may be carried forward for 17 years. Eligible earlier losses remain available without that time limit. Article 114 of the Luxembourg Income Tax Law (LIR) sets accounting and taxpayer conditions, and earlier losses are used first.

MBT has a separate loss calculation and record, governed by its own rules. The same accounting loss should not simply be copied into both records. Neither record necessarily matches the losses shown in equity. An accounting loss can include non-deductible expenses, while a tax loss can include adjustments that do not appear in the accounts.

A later profit can use available losses only under the applicable conditions. Moving a business or acquiring a company does not, by itself, establish that a particular loss remains usable. A tax consolidation also requires its own conditions and treatment of existing losses.

NWT continues when current profit is low

Ordinary NWT is charged at 0.5% on taxable net wealth up to EUR 500 million and 0.05% on the excess. Taxable net wealth is not simply accounting equity. Tax valuation rules, exemptions and the deductibility of related liabilities determine the assessment.

The minimum for resident companies from 2025 depends on the total of the last closing tax balance sheet before the valuation date. It is EUR 535 up to EUR 350,000, EUR 1,605 above EUR 350,000 and up to EUR 2 million, and EUR 4,815 above EUR 2 million. These are amounts set by law, not estimates of a company’s total annual tax.

The statutory calculation also takes account of the preceding year’s CIT, including the employment fund surcharge and after relevant tax credits, for reduction of the minimum. Ordinary NWT and its separate reduction rules must then be considered. The minimum table cannot replace that comparison.

This distinction matters after selling a subsidiary. An exempt participation may be replaced by cash, which does not inherit that participation’s NWT exemption. The assets and liabilities actually present at the assessment date determine the next calculation.

The return and the payments follow different timetables

Form 500 brings together the corporate income, municipal business and net wealth tax declarations. Filing through MyGuichet, the government’s online portal, is mandatory for the ordinary resident company forms listed by the ACD, including SA and SARL. The return reconciles accounts, tax adjustments, losses and the relevant balance-sheet information.

The general CIT and MBT filing deadline is 31 December of the year following the tax year. The NWT assessment year and valuation date must also be identified correctly in the combined return. For a calendar-year company, a filing containing 2026 income tax information also includes the corresponding NWT information at 1 January 2027. Filing the annual accounts does not replace this tax return.

Quarterly advances fall before the final assessment. The tax calendar places CIT advances on 10 March, June, September and December, and MBT and NWT advances on 10 February, May, August and November. Advances are set against the tax finally assessed. They are not an additional tax.

A material change in expected taxable income can support a reasoned request to adjust advances. An accounting loss does not cancel a payment notice automatically. The annual close, tax return, assessment notices and payment ledger therefore need to remain connected throughout the year, including when a company is preparing to return cash to shareholders.