LUXEMBOURG

Source: IMF, International Financial Statistics, July 2021.

• Luxembourg's central bank is the Banque Centrale du Luxembourg (BCL – www.bcl.lu).
• The Banque Centrale du Luxembourg is a member of the European System of Central Banks (ESCB) and operates certain activities, such as issuing currency, under the authority of the European Central Bank (ECB – www.ecb.europa.eu).

Bank Supervision

• In November 2014, the ECB, via the Single Supervisory Mechanism (SSM), assumed responsibility for supervising the financial stability of banks operating within the euro zone. However, while the ECB has final supervisory authority over all banks operating within the euro zone, it will only directly supervise those banks classified as ‘significant’ under the terms of the SSM (115 significant banking groups have been recognized to date). ‘Less significant’ banks will continue to be supervised by the national supervisory authority, i.e. the Financial Sector Supervisory Authority (Commission de Surveillance du Secteur Financier (CSSF) – www.cssf.lu).

• Lifting fees are applied on payments between resident and non-resident accounts.

• Credit transfers are used by companies to pay salaries and suppliers, and to make tax and treasury payments. They are also used to make benefit payments and interbank payments.
• SEPA credit transfers can be settled via STEP2 or correspondent banking networks.
• Approximately 66 banks in Luxembourg participate in the SEPA credit transfer scheme.
• Banque Raiffeisen’s incoming and outgoing domestic and cross-border SCTs are processed by the Netherlands-registered company, Equens SE.
• High-value and urgent EUR-denominated domestic and cross-border (within the euro zone) credit transfers can be settled in real time via TARGET2-LU.
• High-value and urgent cross-border credit transfers can also be settled with end-of-day value via the Euro Banking Association's EURO1 system. Seven banks in Luxembourg participate directly in EURO1.
• Cross-border transfers can be made via SWIFT and settled through correspondent banks abroad and/or bank branch networks.
• In November 2017, the European Payment Council’s SCT Inst scheme (a pan-European 24/7 instant payment scheme for SEPA credit transfers) went live across all SEPA countries. The scheme enables the transfer of funds (the maximum threshold value for SCT Insts is EUR 100,000, as of July 2020) to another account in less than ten seconds. There are seven SCT Inst participants in Luxembourg at present.
• EBA Clearing and Italy’s SIA Group have developed and implemented a pan-European platform for instant EUR payments called RT1. It is fully compliant with the SCT Insts scheme and is in line with the ISO 20022 global messaging standards for instant payments.
• TIPS is a pan-European service for the settlement of instant payments in central bank money. The service enables payment service providers and ACHs with access to TARGET2 to offer fund transfers 24/7, 365 days a year. TIPS is aligned with SCT Insts. It is primarily focused on EUR payments but is technically capable of settling payments denominated in other currencies.

• Direct debits are used for regular payments, such as utility bills.
• SEPA CORE and B2B direct debit schemes can be settled on a same-day basis via STEP2. There are 30 Core SDD participants and 19 B2B SDD.
• Cross-border SEPA direct debits can be processed via STEP2 or Switzerland’s SIX Payment Services (which works together with the Swiss Euro Clearing Bank (SECB)).

• Cheques are rarely used in Luxembourg.
• Cheques are cleared and settled bilaterally between banks.

• Card payments are increasingly popular, especially for retail transactions.
• There were 1 million debit cards and 2.0 million credit cards in circulation at the end of 2019.
• Visa and MasterCard-branded payment cards are the most widely issued.
• American Express and Diners Club credit cards are also available.
• Card payments are settled via Switzerland’s SIX.
• Contactless card technology is available in Luxembourg.

• There were 595 ATMs in Luxembourg at the end of 2019.
• There were 16,740 EFTPOS terminals in Luxembourg at the end of 2019.
• All payments are settled via SIX.
• All ATMs and POS terminals are EMV-compliant.

• Paysafecard is an online pre-paid payment method. The paysafecard is credited using paysafecard PINs and is not linked to bank accounts. Customers can combine paysafecard PINs with an online account.
• The Digicash mobile payment app is offered by Luxembourg’s leading banks and used by over 25% of the population.

• BNP Paribas BGL's Global Trade Solutions (GTS) team comprises a local trade manager supported by a middle office team of 10 trade finance experts. In addition to the bank's integrated export and import offering (e.g. documentary credits, collections and international guarantees) supported by the bank's global processing platforms, GTS also provides corporate clients with innovative supply chain management solutions.

• The EU has trade agreements in place with over 30 countries.
• The EU is currently in free trade negotiations with a number of countries, including the Association of Southeast Asian Nations (ASEAN), Australia, Indonesia, Mercosur (the Southern Common Market), Uruguay and the USA.
• The EU-UK Trade and Cooperation Agreement came into force on 1 May 2021.

Source: IMF, International Financial Statistics, July 2021.

• Import licences are required for certain textiles, steel products, diamonds and armaments from outside the EU.
• Import licences with quotas are required for certain steel products from Kazakhstan.

• Tariffs are set according to the EU customs code for all imports from outside the EU, with higher tariffs for agricultural imports.
• There is one free zone (Luxembourg Freeport) operating in Luxembourg.

• None 

• None 

• Luxembourg prohibits the import of certain items in line with EU regulations and UN Security Council resolutions.
• Specific imports are prohibited in order to protect fauna and flora, for health and safety or moral reasons, and/or for national security.

• Export licences are required for certain strategic items (e.g. diamonds, armaments and dual-use items), and for exports to countries under UN embargo.

• None 

• None 

• Luxembourg has implemented the EU directive on export credit insurance.
• The Office du Ducroire, Luxembourg’s national export credit agency, provides state-supported export credit insurance.
• Export credit insurance is also available from private insurance companies.
• Export financing is available from commercial banks.

• Luxembourg prohibits the export of certain items in line with EU regulations and UN Security Council resolutions.

• Luxembourg does not apply exchange controls.
• Restrictions apply to foreign investment from non-EU states in Luxembourg's airlines.

• There are no specific rules in place to determine the tax treatment of financial instruments. In principle, tax rules follow accounting treatment.

• Interest costs are generally tax deductible. However, expenses that have been incurred by a Luxembourg company and which are economically linked to the payment of a dividend in the same year are not tax deductible.
• Interest in excess of an appropriate debt/equity ratio may be re-characterised (see Thin capitalisation below).

• Taxation of foreign exchange gains or losses in principle follows Luxembourg GAAP accounting principles (realised exchange gains are taxed, whilst realised and unrealised exchange losses are tax deductible).
• In Luxembourg, the capital of entities may be contributed in a currency other than EUR and the accounts could also be maintained in the entity’s capital currency. Under certain conditions and upon request from the taxpayer to the tax authorities, the tax law allows the neutralisation of the exchange gains on the investment of the equity of an entity. Only companies which predominantly generate their income from financial assets may benefit from the neutralisation of exchange gains (through the constitution of a specific provision in the fiscal balance sheet expressed in EUR). This will temporarily defer the taxation of realised exchange gains.

• The administrative practice in Luxembourg allows (without obligation) tax inspectors to give binding confirmation within the scope of the law, regulation and case law of the tax treatment that would be applicable in the specific case submitted by a taxpayer or their representatives. This binding information is based on a bona fide principle, meaning that the facts and tax law on which it is based do not change.
• An administrative fee will apply.
• Please see Transfer pricing below.

• Capital gains generally are included in taxable income and taxed at the standard corporate tax rate. However, capital gains derived from the sale of shares may be exempt from corporate income tax in certain cases.

• A withholding tax of 15% is levied on interest paid to both resident and non-resident companies, derived from profit-sharing bonds (subject to tax treaty reduction) and profit listed debt instruments. All other interest is exempt to the extent that the rate and conditions are at arm’s length.
• A withholding tax of 15% is levied on dividends (except liquidation payments) paid to resident and non-resident companies.  No tax is withheld on dividends paid to a qualifying company under the EU parent-subsidiary directive, unless the transaction qualifies as an abuse of law under the general anti-abuse rule. Luxembourg has extended the benefits of the directive to parent companies resident in non-EU tax treaty countries, provided conditions similar to those under the Luxembourg participation exemption are satisfied and the parent company is subject to a tax similar to Luxembourg corporate income tax.
• Domestic law in Luxembourg does not levy withholding tax on royalty payments to resident/non-resident companies (whether an EU member or not).
• A tax credit is available under tax law in Luxembourg for any tax withheld. The credit allowed is limited to the amount of Luxembourg income tax due on the net income from the foreign country concerned (alternatively a global method is also available). If effective foreign taxes cannot be fully credited because they exceed the limit, the excess may be deducted as an expense from taxable income. Double taxation treaties may contain more favourable tax credits.

• Luxembourg has exchange of information relationships with 86 jurisdictions through 86 double tax treaties and no TIEAs.
• Luxembourg, as part of the OECD/G20 Base Erosion and Profit Shift (BEPS) initiative, has signed a multilateral co-operation agreement with 30 other countries (‘the MCAA’). Under this multilateral agreement, information is exchanged between tax administrations, giving them a single, global picture on some key indicators of economic activity within multinational enterprises (MNE).
• With country-by-country reporting, tax administrations of jurisdictions where a company operates have aggregate information annually relating to the global allocation of income and taxes paid, together with other indicators of the location of economic activity within the MNE group. It also covers information about which entities do business in a particular jurisdiction and the business activities each entity engages in. The information is collected by the country of residence of the MNE group, and then exchanged through exchange of information supported by such agreements as the MCAA.

• As from January 1, 2019, “excess borrowing costs” (the amount of borrowing costs that exceed the amount of taxable revenue) are deductible up to 30% of the taxpayer’s tax-based EBITDA,
• Where certain conditions are fulfilled, the 30% limitation does not apply to excess borrowing costs up to EUR 3 million or that are incurred: (i) by taxpayers meeting a group-wide test; (ii) by standalone entities and “financial undertakings”; (iii) on loans concluded before June 17, 2016; or (iv) on loans that are used to fund EU long-term public infrastructure projects.
• Excess borrowing costs that cannot be deducted in the current tax year can be carried forward indefinitely. Unused interest capacity may be carried forward for up to five years.
• Tax integrated entities are allowed to calculate their excess borrowing costs and EBITDA at the level of the integrated group or opt for the individual application of the interest limitation rule.
• As from 1 March 1 2021, deductions for interest and royalty payments due to a related entity established in a country or territory included in the EU list of noncooperative jurisdiction for tax purposes will be denied, unless the taxpayer can demonstrate that the transaction is driven by sound business reasons that reflect economic reality.

• Luxembourg has specific transfer pricing legislation requiring transactions between related parties to be conducted on arm’s-length terms. The tax authorities can request documents to investigate transactions with related parties.
• Tax payers should be able to justify their transactions and provide a valid business rationale, through transfer pricing documentation based on a functional and risk analysis.
• Country-by-country reporting, in line with the OECD’s BEPS action 13, is required.
• Tax measures have been introduced toc support Luxembourg as a prime financial centre, including new guidance and clarification on the transfer pricing rules for Luxembourg entities engaged in intragroup financing activities.
• A company may request an advance pricing agreement from the Luxembourg tax authorities.

• Stamp duty is levied at various rates on the registration of notary deeds, bailiff deeds and certain acts of the judiciary.

• Luxembourg has no specific tax rules regarding cash pooling arrangements.

• There are no specific tax rules relating to financial transactions/banking services.

All tax information supplied by Deloitte Touche Tohmatsu and Deloitte Highlight 2021 (www.deloitte.com).