Luxembourg has a thriving economy and is renowned for its high standard of living. Luxembourg is a stable and safe country with a strong and diversified economy. In addition to the banking and finance sector, there is expertise in steel, polymers, composite materials, car-component manufacturing, logistics, digital services, satellite development, and media production.

Luxembourg is one of the world's leading financial centers and benefits from a favourable legal environment, particularly in the funds, financial, and banking sector. It is the largest European fund domicile and the second largest fund centre in the world after the United States.

Luxembourg is a multinational and multilingual place. Almost 50% of workers (working mostly in the financial centre) are foreign and come from all parts of the world. Luxembourg's three official languages are Luxembourgish, German, and French.

Luxembourgers are rational and pragmatic. Courtesy is valued. Public authorities are easily approachable and business oriented. English, German, and French are spoken fluently.

The government has tried to cushion the impact of the novel coronavirus disease (COVID-19) pandemic on business to the extent possible. It has taken various measures, including:

The measures support SMEs and larger companies, start-ups, and self-employed workers. Their purpose is to help businesses to meet their immediate liquidity needs, survive cash-flow difficulties, obtain bank loans through state guarantees, and maintain employment. However, it is too early to assess the full impact of the COVID-19 crisis on business.

In response to the COVID-19 crisis, authorities implemented a variety of measures including, among others, changes to company meeting requirements, and the extension of certain legal and administrative deadlines in relation to reporting, tax, annual accounts, and court proceedings. In addition, the deadline applicable to mandatory filings for bankruptcy under Art. 440 of the Commercial Code (Art. 5) was suspended until 31 December 2021.

The Law of 10 July 2020 on professional payment guarantees provides for the creation of a new type of payment guarantee. It supplements the existing range of guarantees and provides greater freedom of contract and flexibility for personal payment guarantees.

Bill 6539 of 26 February 2013 on business continuity and the modernisation of bankruptcy law, which contains changes to insolvency legislation, has not been adopted yet. The Bill is structured around four guiding principles of prevention, recovery, dissuasion, and support. The Preventive Restructuring Frameworks Directive ((EU) 2019/1023) was adopted and had to be transposed into Luxembourg law by 17 July 2021. It is expected that the future amendments of Bill 6539 will include the requirements of this Directive. The coming months will show if this will be accelerated due to COVID-19.

Luxembourg has implemented the ATAD 2 Directive ((EU) (2017/952). The Law of 10 February 2021 introduced a tax deductibility denial of interest and royalties due to certain collective entities (organismes à caractère collectif) established in a country or territory as per a specific EU list of non-cooperative countries and territories for tax purposes, unless it can be proven that the transaction to which the interest or royalties relate is carried out for valid commercial reasons which reflect economic reality.

Luxembourg has a civil law system based on the Napoleonic Code, which in turn is based on Roman law. Neighbouring countries including France, Belgium, and Germany, and the EU influence legislative developments in Luxembourg.

Companies are governed by the Act of 10 August 1915, as amended (Companies Act), which draws heavily on Belgian corporate law. The Companies Act was reformed in 2016 to modernise Luxembourg corporate law, and a consolidated version of the Act was published in December 2017, following the renumbering of its articles by Grand Ducal Regulation of 5 December 2017.

There are no restrictions on foreign investment. However, in 2019 the EU established a framework for the screening of foreign direct investments.

On 25 March 2020, the Commission issued new guidance on foreign investment screening in response to the COVID-19 crisis. The aim is to preserve EU companies and critical assets, particularly in areas that are essential for security and public order including health, medical research, biotechnology, and infrastructure.

Currently, the Parliament is examining Bill No 7578 of 7 May 2020, which will establish a legal basis for a screening mechanism of foreign investments in Luxembourg.

Luxembourg is a member state of the EU and various international organisations (for example the OECD) and complies with the rules they impose or propose for implementation.

There are no exchange control or currency regulations. However, identification requirements must be fulfilled when entering into business relationships, opening bank accounts, or transferring more than EUR10,000 (Article 2(15), Act of 12 November 2004 on the fight against money laundering and terrorist financing (Anti-Money-Laundering-Act)).The Laws of 25 March 2020 implement the Fifth Anti-Money Laundering Directive ((EU) 2018/843) (AML V), including setting up central electronic data retrieval systems in the Luxembourg Supervisory Commission for the Financial Sector (Commission de Surveillance du Secteur Financier) (CSSF). Any natural or legal persons holding or controlling payment accounts and bank accounts identified by an International Bank Account Number (IBAN) and safe-deposit boxes held by a credit institution in Luxembourg can be identified in a timely manner.

A Grand Ducal Regulation of 14 August 2020 and CSSF Regulation N°20-05 of 14 August 2020 supplement the Anti-Money-Laundering-Act.

The Act of 10 July 2020 established a register of fiducies and trusts and transposes into Luxembourg law the last part of the Fourth Anti-Money Laundering Directive ((EU)2015/849) as amended by the AML V. This Act followed the Act of 13 January 2019, which established a register of beneficial owners of Luxembourg companies.

The Law of 13 January 2019 (RBE Act) applies to entities registered with the Luxembourg Trade and Companies Register, including civil and commercial companies, branches of foreign companies, Luxembourg common investment funds, and other types of investment funds including UCITSs, SICARs, RAIFs and SIFs. However, there is an exception for companies whose securities are admitted to trading on a qualifying regulated market (qualifying listed entities). The information to be provided includes the ultimate beneficial owner's first and last name, nationality, date and place of birth, country of residence and national identification or registration number, and the nature and scope of the interest held in the entity. Qualifying listed entities are only required to provide the name of the market on which their securities are traded.

The very comprehensive CSSF circular 19/732 clarifies the identification and verification of ultimate beneficial owner(s).

Luxembourg offers a wide range of measures to benefit newly created companies in Luxembourg including:

Luxembourg also has specialised institutions and a good international network of foreign trade advisors to assist national and foreign potential investors, including:

Luxembourg law recognises the following eight types of companies, each of which has legal personality distinct from its members:

Luxembourg also recognises the special limited partnership (société en commandite spéciale) (SCSp), which does not have legal personality. Luxembourg has implemented EU legislation allowing for the incorporation of a Societas Europeae (SE).

The choice of corporate form depends on both economic considerations and legal considerations. The most common types of legal entities used in Luxembourg by both foreign and national companies are the SA and SàRL. The main difference between the two is that the SàRL cannot raise funds from the public through the issuance of shares (although it can issue bonds).

Due to its attractive corporate and regulatory environment, Luxembourg plays an increasingly important role on the rising European SPAC market. In February 2021 Lakestar SPAC I SE, a Luxembourg-incorporated SPAC was listed on the Frankfurt Stock Exchange.

The common law concept of a trust does not exist under Luxembourg law. However, Luxembourg recognises trusts that are validly created in foreign jurisdictions. In addition, there are fiducies which are defined as fiduciary contracts subject to the amended Law of 27 July 2003 relating to trusts and fiduciary contracts.

A public limited-liability company (SA) and a private limited-liability company (SàRL) are formed as soon as their articles of incorporation (articles) are executed, but the articles are only enforceable against third parties as from their publication. The articles must be drawn up before a Luxembourg civil law notary.

Article 420-15 of the Companies Act sets out the minimum information that the articles of an SA must contain.

The incorporation of an SA and SàRL requires the following steps:

Depending on the type of business to be conducted by the company, it may also be subject to other legislation, specific requirements and supervision by certain regulatory authorities.

More information can be found at www.lbr.lu.

Businesses must file their accounting and financial information online with the RCS in accordance with the Act of 19 December 2002 on the Trade and Companies Register and the accounting and annual accounts of companies.

The shareholders' general meeting of a public limited-liability company (SA) must approve the annual accounts, the management report, and the report of the auditor (commissaire aux comptes) or statutory auditor (réviseur d'entreprises) within six months from the end of the company's financial year.

The annual financial statements must be filed within one month after their approval, that is, within seven months from the end of the financial year.

The filing fee for annual financial statements is EUR36 if filed before the deadline. The fee progressively increases to EUR500 in the event of a filing delay of five months or more.

The minimum share capital for SAs is EUR30,000. The share capital must be subscribed in its entirety and at least one-quarter of each share must be paid up on incorporation. There is no maximum share capital.

The minimum share capital for SàRLs is EUR12,000.

Shares can be issued in return for contributions other than cash, subject to certain conditions. However, the subscribed capital can only be formed of assets capable of being valued in monetary terms. For example, an undertaking to perform work or supply services cannot form part of the assets. In an SA, contributions other than cash must be paid up within five years after incorporation and are subject to an auditor's valuation report (réviseur d'entreprise) drawn up and issued to a Luxembourg notary.

Restrictions on rights attaching to shares. Founders' shares or similar securities can be created in addition to shares that represent capital. Preferred voting and non-voting shares can also be issued, subject to certain conditions. The rights and restrictions attaching to shares must be specified in the articles.

Automatic rights attaching to shares. All shareholders have rights to:

In addition, shareholders holding together one-tenth or one-twelfth of the share capital have additional rights provided in the Companies Act and in the Act of 24 May 2011 on shareholders rights in listed companies (as amended).

Minority shareholders may have additional rights under the company's articles.

Although the Law of 25 August 2006 enabled public limited-liability companies to opt for a two-tier board structure, the one-tier board structure remains by far the preferred option.

In the one-tier system, the company is managed exclusively by a board invested with the broadest powers to act in the company's name and on its behalf. Directors are appointed by a general meeting of shareholders, for a term set by the general meeting of up to six years (this limitation only applies to SAs). Directors can be re-elected and removed from office at any time by a general meeting.

In the two-tier system, the company is managed by two bodies, a management board, entrusted with the company's day-to-day management, and a supervisory board.

The supervisory board's responsibilities include the appointment and permanent supervision of the management board members and the inspection of all company transactions. No person can be a member of both boards at the same time. Members of the supervisory board can be held liable to the company and third parties, in accordance with the law. However, there is no specific guidance on the supervisory board's members' exercise of their powers.

Any individual appointed to serve as a company director must have full legal capacity to act. The Companies Act does not contain any age, gender, nationality, residence, or domicile requirements for directors. However, there are several general requirements:

The company must have its place of central administration at its registered office in Luxembourg, which means that meetings of the board of directors and shareholders' meetings must be held at the company's registered office (Article 100-2, Companies Act).

A legal entity can serve as a director of an SA but must appoint an individual (natural person) to represent it on the board (Article 441-3, Companies Act).

Due to the COVID-19 crisis, a number of temporary measures to facilitate board and shareholder meetings were organised. Currently, Luxembourg-based companies can still organise virtual shareholder meetings, without the shareholder's physical presence, even if the company's articles of association do not provide for this possibility. They can also hold board meetings, even if the articles provide otherwise, without the board members' physical presence being required by using circular resolutions, or by video conference or other means of communication allowing the board member to be identified (Law 30 June 2021).

Liability for business transactions. The business manager is liable to the company for mismanagement. Mismanagement consists of managerial mistakes that would not have been committed by a reasonably prudent and normally diligent business manager and that could easily have been avoided. Managers are jointly and severally liable to the company and third parties, including individual shareholders, for violation of Luxembourg corporate law or the articles.

Liability in the event of bankruptcy. Bankruptcy is not in itself a punishable offence. However, the Commercial Code provides for the liability of a manager who contributed to the insolvency of the company through gross negligence (Article 495-1, Commercial Code (action en comblement de passif)).

Currently, due to the COVID-19 crisis, in the event of a cessation of payments resulting from insufficient liquidity and loss of creditworthiness, the one-month deadline by which the directors of the company must declare its bankruptcy is suspended (Law 30 June 2021).

Civil liability. In the event of an error committed by a business manager, the injured party (generally a person that has no contractual relationship with the company) can take legal action against the manager personally (Article 1382, Civil Code). However, in practice the injured party usually brings a case against the company, which usually has more resources.

Criminal liability. Company managers can be held criminally liable if they personally commit fraudulent acts, for example abuses of trust, frauds, or violations of the commercial companies legislation and fair trade practices.

The parent entity of a commercial company can be ordered to fully pay up shares for which it has subscribed. It can also be exposed to liability if it acts as a de facto manager or if creditors can successfully demonstrate that the parent company and the bankrupt company should be considered to be the same party, in particular due to a co-mingling of assets.

The government is committed to diversifying Luxembourg's economy, to make it greener and more sustainable. It has a adopted a National Plan for Sustainable Development (2019) and a waste and resource management plan.

Luxembourg has transposed the Environmental Impact Assessment Directive (1997/11/EC) (EIA) into its national law. Following this standardised EU approach, at an early stage of planning, the environmental effects of a project on public health, fauna and flora, soil, water, air, climate, landscape, cultural heritage, and the interaction of these factors are identified, described, and evaluated. Projects involving building work, installations, or work that results in interventions in natural surroundings or the countryside are automatically submitted for an environmental impact assessment.

Natural persons or legal entities who intend to engage in an activity defined as a classified establishment must obtain an operating permit. Classified establishments include diverse activities, establishments, and technical installations, for example, service stations, office buildings, restaurants, underground car parks, and lifts. The permits define the development and operating conditions considered necessary to protect the environment and ensure the safety of workers, the public, and the neighbourhood in general.

For more information on environmental obligations for companies: www.betriber-emwelt.lu.

Employment relationships (both individual and collective) are mainly regulated by:

The Labour Code contains mandatory rules that apply to all employment contracts governed by Luxembourg law and to foreign employees working in Luxembourg (for example, in relation to minimum wages, working time, and duration of annual leave). The parties can only derogate from these provisions in the employee's favour, and any clause that aims to restrict the rights of the employee is void.

Article L121-4 (1) of the Labour Code states that the employment contract must be concluded in writing and signed on the first day of work, at the latest. However, there is no sanction for not having a written contract.

Verbal contracts are recognised by case law. However, it is strongly recommended to conclude a contract in writing, detailing the nature and conditions of the relationship. If no written contract has been signed, the employee can use any means to prove the existence and the content of the contract. The Labour Code does not grant the same right to the employer.

All written employment contracts must include the following information:

(Article L.121-4 (2), Labour Code.)

Part-time employment contracts must include the following additional information:

(Article L.123-4, Labour Code.)

Fixed-term employment contracts must include the following additional information:

(Articles L.122-1 and L.122-2, Labour Code.)

Nationals of EU member states, the EEA, and Switzerland benefit from freedom of movement and are allowed to work in Luxembourg without a work permit or visa.

Citizens from these countries can stay in Luxembourg for up to three months. For a stay of more than three months, they must either:

(Article 6, Law of 29 August 2008.)

After having legally resided in Luxembourg for an uninterrupted period of five years, nationals of an EU member state and members of their family living with them who are also EU citizens can request permanent residence in Luxembourg by submitting a permanent residence permit application to the Immigration Directorate of the Ministry for Foreign and European Affairs (Articles 9 and 20, Law of 29 August 2008).

British nationals ceased to be considered EU citizens on 1 February 2020. However, under the UK-EU withdrawal agreement they, and their family members, were guaranteed broadly the same rights as EU citizens during the transition period. The transition period ended on 31 December 2020. In this framework:

(UK-EU withdrawal agreement and Law of 29 August 2008.)

Luxembourg immigration rules apply to nationals from non-EU countries:

Non-EU nationals who are highly qualified workers can apply for a specific residence permit called an EU Blue Card.

To be classified as a highly qualified worker, a non-EU national must satisfy the following conditions:

The EU Blue Card is valid for four years or, if the employment contract has a validity period of less than four years, for the duration of the employment contract. During the first two years, the EU Blue Card is only valid for specific professions in a specific sector.

Non-EU nationals who have lawfully resided in Luxembourg for an uninterrupted period of at least five years can apply for long-term resident status.

If a public limited-liability company incorporated in Luxembourg has employed 1,000 people or more over the past three years, or the company has benefitted from state investment, it must be managed by a board of directors or supervisory board consisting of at least one-third employees.

Companies employing at least 15 employees for a period of 12 consecutive months or more must elect a staff delegation. Elections take place every five years. The next elections should be held in the beginning of 2024.

The general mission of the staff delegation is to safeguard and defend the interests of the employees' working conditions, job security, and social status. It is vested with extended rights, including the right to be informed, and where required consulted with, on matters related to the company's life and the employees' work conditions, health, safety, and well-being. However, their opinion does not bind. (For information about the powers and attributions of the staff delegation see Articles L.414-1 to L.414-17 of the Labour Code.)

Included in this general right of information about the progress and life of the company, are the recent and probable development of its activities and its economic situation (on request, or monthly in companies with at least 150 employees). The employee representatives must also be provided, at least once a year, with a business activity report if the company employed less than 150 people during the 12-month period preceding the first day of posting of the notice of the staff delegation elections.

The staff delegation must be consulted about (among other things):

In companies having more than 150 employees, the staff delegation is also vested with certain co-decision rights, for example:

In addition, in the event of a transfer of the undertaking, the transferor and the transferee must inform the staff delegation about:

The termination formalities for employment contracts vary depending on whether the contract is fixed term or open-ended.

A fixed-term contract can only be terminated before expiry of its term for gross misconduct by one of the parties (except during the trial period, (see below)).

Open-ended employment contracts concluded for an indefinite period can be terminated as follows.

Grounds for unfair dismissal. A dismissal is unfair if any of these rules are not complied with, for example where:

Remedies. Employees can apply to the court for damages or annulment, depending on the breach.

The following employees, among others, enjoy special protection against termination of their employment:

For the collective redundancy procedure to be applicable, the layoffs must:

(Articles L.166-1 to L.166-9, Labour Code.)

All other terminations of employment contracts by the employer for reasons that have nothing to do with the employee's person, for example negotiated voluntary departures, early retirement, and special invalidity schemes, are treated as redundancies (see Question 16, Fair Dismissal).

In a collective redundancy, the employer must:

The length of the notice period is extended in the event of a collective redundancy, as follows:

Employees who are residents of Luxembourg for tax purposes are subject to tax on their worldwide income. An individual is a tax resident of Luxembourg when they have their tax domicile or habitual place of residence in Luxembourg. A tax domicile requires the individual to have a dwelling at their disposal in Luxembourg (for example as an owner or tenant) that they intend to use and keep. The habitual place of residence requires predominant physical presence (not a temporary stay) and is considered to be in Luxembourg when the individual stays in Luxembourg for more than six consecutive months.

An individual is considered a non-tax resident of Luxembourg if they have neither their tax domicile nor habitual place of residence in Luxembourg and if they have Luxembourg-sourced income within the meaning of Article 156 of the Income Tax Law. Employment income is deemed to have its source in Luxembourg if:

The bilateral tax treaties concluded by Luxembourg are generally in line with Article 15 of the OECD Model Convention, so that the remuneration of a non-resident employee is taxable only in their country of residence unless the employment is exercised in Luxembourg, in which case the remuneration derived in Luxembourg can be taxed in Luxembourg. However, income from employment in Luxembourg is taxable in the employee's country of residence if the 183-day rule is met.

The Luxembourg Tax Authorities do in practice, not use any other methods to determine residency.

The income tax rates vary from 0% to 42%, plus a 7% to 9% unemployment fund contribution. A maximum rate of 45.78% applies to taxable income in excess of EUR200,004 for a single employee filing individually.

Luxembourg essentially takes into account the marital status of the employee and the existence of dependent children in determining the applicable income tax regime and conditions. A tax resident may have to make tax pre-payments.

An income tax return must be filed annually (except in certain cases) by 31 March of the year following that to which the income relates. It is usually possible to obtain an extension. Due to the COVID-19 crisis, the deadline for the submission of the income tax return for the year 2020 has been extended until 30 June 2021 (instead of 31 March 2021).

The tax due is payable no later than one month from receipt of the assessment.

In Luxembourg, both employers and employees are subject to social security contributions, but the employer is responsible for both:

The employer's contribution ranges from 12.145% and 15.195% of the gross monthly remuneration capped at EUR11,284.77 as of 1 October 2021 (annual ceiling of EUR132.941,16 for the year 2021). The employee's contribution is between 10.8% and 11.05% calculated on the same basis. The dependency contribution is equal to 1.4% of the employee's monthly gross remuneration, which is not subject to a cap.

In the event of extra-territorial activities, the applicable social security system may be determined with reference to, for example, a bilateral social security agreement or EU regulations.

The tax rates and unemployment fund contribution rates applicable to taxable income are the same for all employees, regardless of whether they are a tax resident of Luxembourg.

The tax regime applicable to a non-tax resident essentially depends on the marital status of the employee and the existence of dependent children, and specific conditions may need to be met. A non-tax resident may need to make tax pre-payments.

Non-tax resident employees are subject to similar income tax return filing rules as tax resident employees. However, there are exceptions. Due to the COVID-19 pandemic, the deadline for the submission of the income tax return for the year 2020 has been extended until 30 June 2021 (instead of 31 March 2021).

The tax due is payable no later than one month from receipt of the assessment.

Social security contributions and the dependency contribution for a non-resident employee are calculated, collected, and paid as for employees who are residents of Luxembourg. They are subject to the same filing requirement as resident employees.

Non-resident employees' applicable social security system may be determined with reference to, for example, a bilateral social security agreement or EU regulations.

The employer must perform the following actions:

A collective entity (organisme à caractère collectif) is a tax resident of Luxembourg if it has its registered office or place of central administration in Luxembourg. (Business vehicles that are transparent for tax purposes are not covered here.)

In general, a non-tax resident collective entity is subject to tax in Luxembourg on its business income realised directly or indirectly by a permanent establishment or a permanent representative in Luxembourg (subject to certain exceptions). However, a non-tax resident collective entity may be subject to tax in Luxembourg in other cases as well (for example capital gains on the disposal of shares in a Luxembourg collective entity in certain circumstances). However, reliefs may apply.

Business income within the meaning of Article 156 1 a) of the Income Tax Law derived from internet sales by a non-tax resident collective entity should not be subject to tax in Luxembourg if not realised directly or indirectly by a Luxembourg permanent establishment.

Tax resident collective entities are subject to the following taxes:

CIT applies to worldwide taxable income whereas MBT is territorial in scope. The taxable income for CIT purposes is the starting point used to calculate the MBT although in certain cases adjustments may need to be made.

In the absence of a statutory limitation or exclusion (for example, an anti-hybrid rule or an interest limitation rule), expenses (including financing expenses and depreciation) are deductible for CIT and MBT purposes if they:

For the tax year 2021, the top CIT rate is 17% when the taxable income exceeds EUR200,000.

The MBT depends on the rate applied by the municipality where the collective entity is established (for Luxembourg-City the rate is 6.75%). Therefore, the combined tax rate in Luxembourg-City is 24.94%, considering 7% contribution to the unemployment fund calculated on CIT rate, 17% CIT and 6.75% MBT.

A 0.5% NWT applies to the unitary value (valeur unitaire) (determined as of 1 January) of the collective entity, which corresponds to its adjusted net asset value. The portion of the unitary value exceeding EUR500 million is subject to a NWT rate of 0.05%. Certain assets can be excluded from the calculation basis (for example, qualifying shares and intellectual property rights, and tax treaty exclusions). Liabilities in connection with excluded assets are not deductible. NWT relief is available under certain conditions and within certain limits. A minimum NWT is due in certain cases.

The Law of 10 February 2021 introduced a tax deductibility denial of interest and royalties due to certain collective entities (organismes à caractère collectif) established in a country or territory as per a specific EU list of non-cooperative countries and territories for tax purposes, unless it can be proven that the transaction to which the interest or royalties relate is carried out for valid commercial reasons which reflect economic reality. The law provides for a definition of the concepts of interest and royalties that are covered by these provisions.

Conditions relating to the beneficiary of the interest or royalties. The measure applies to beneficiaries that meet the following cumulative conditions:

Valid commercial reasons which reflect economic reality. By way of exception, the tax deductibility of interest and royalties cannot be denied for purposes of the new rule if it can be proven that the transaction to which the interest or royalties due relate is carried out for valid commercial reasons which reflect economic reality.

Non-tax resident collective entities are subject to CIT and MBT in Luxembourg on their Luxembourg-source income. They are subject to the same CIT and MBT rates as tax resident collective entities (organismes à caractère collectif). NWT applies to non-tax resident collective entities (organisme à caractère collectif). However, these are not subject to the minimum NWT.

A tax resident or non-tax resident collective entity (organisme à caractère collectif) may have to make tax pre-payments.

Due to the COVID-19 crisis, the Luxembourg direct tax authorities have announced that cancellation of pre-payments on CIT and MBT for the first and/or second quarters of 2020 is available under conditions. However pre-payments on NWT are not covered by this measure.

A tax resident or non-tax resident collective entity (organisme à caractère collectif) must file CIT, MBT and NWT returns. The deadline for filing those returns is 31 May of the year following the financial year closing on 31 December (specific rules apply if the financial year does not close on 31 December). An extension may be granted on request. Due to the COVID-19 crisis, the deadline for the submission of those tax returns for the year 2020 has been extended until 30 June 2021 (instead of 31 May 2021).

The tax due is payable no later than one month from receipt of the assessment.

Due to the COVID-19 crisis, the Luxembourg direct tax authorities have announced that a four-month, interest-free extension for the payment of CIT, MBT and NWT, for taxes due after 29 February 2020 is available under certain conditions, although the extension does not apply to payroll tax.

A tax resident (or non-tax resident) collective entity (organisme à caractère collectif) can be a person subject to VAT, which involves satisfying specific rules (for example, in relation to the filing of returns or remittance of tax). The standard VAT rate is 17%.

Dividends distributed by a tax-resident collective entity to foreign corporate shareholders are in principle subject to a 15% withholding tax. Withholding tax relief may be available under a tax treaty or national law.

An exemption from withholding tax is available if the recipient of the dividend is one of the following:

The recipient must also, at the time the dividend is made available, hold or commit to hold, directly or through a tax transparent entity, for an uninterrupted period of at least 12 months, a shareholding in the capital of the distributing entity of at least either:

There is also a specific anti-abuse provision with a defined scope.

Dividends received from a direct shareholding in a subsidiary, or through a tax-transparent entity, by a fully taxable collective entity or a fully taxable capital company that is a tax resident of Luxembourg or a Luxembourg permanent establishment (in certain cases), are exempt from CIT and MBT if the following all apply:

There is an "anti-hybrid instrument" intra-EU provision and a specific anti-abuse rule with a defined scope.

If dividends received are tax exempt, expenses with a direct economic connection to the dividends in a given year are not tax deductible, except to the extent they exceed the amount of the dividends. There are rules on write-downs in connection with the distribution of an exempt dividend.

A 50% exemption is available under certain conditions.

In principle, no withholding tax is due on interest paid by a tax-resident collective entity to a foreign corporate shareholder. However, a 15% withholding tax applies in certain cases, including:

A 20% withholding tax applies to interest paid by a paying agent based in Luxembourg to or for the benefit of an individual beneficial owner who is a resident of Luxembourg.

Tax treaty or domestic relief may be available.

Generally, no withholding tax is due on royalties. Tax treaty relief may be available.

In the absence of specific legal provisions, the thin capitalisation rules follow the arm's-length and abuse of law principles in terms of equity funding.

Luxembourg administrative practice requires equity funding of at least 15% for a loan granted directly or indirectly by related persons to finance the acquisition of a shareholding or investment in real estate by a tax-resident collective entity (or third-party loan guaranteed or secured by related persons for financing purposes).

For tax years starting on 1 January 2019, the interest limitation rule introduced by the law of 21 December 2018 implementing the Anti-Tax Avoidance Directive ((EU) 2016/1164) can impact the deductibility of interest on either related or unrelated financing. Guidance on the interest limitation rule has been recently issued.

See also Question 25.

Other than the potential application of a general anti-abuse rule, for tax years starting from 1 January 2019 there are specific controlled foreign company (CFC) rules further to the Anti-Tax Avoidance Directive, for which guidance was issued in 2020.

Provided that certain conditions are met, the undistributed net income of a CFC derived from non-genuine arrangements set up essentially in order to obtain a tax advantage is to be included in the net income of a Luxembourg resident-parent company.

Luxembourg follows the arm's-length principle as interpreted by the OECD (Articles 56, 56bis and 164.3, Income Tax Law).

Taxpayers must be able to justify the arm's-length price applied and provide a business rationale for transactions.

In February 2020, the OECD issued Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS Actions 4, 8-10. Although the Luxembourg tax authorities have not released guidance on this, they should follow said OECD guidance (specifically the February 2020 guidance).

A circular on the tax treatment of companies engaged in intra-group financing focuses on, among other issues, the equity at risk and substance requirements. Another circular deals with transactions with associated companies located in non-co-operative countries and territories for tax purposes (https://impotsdirects.public.lu/dam-assets/fr/legislation/legi18/lga64-07052018-mesures-defensives-en-relation-avec-la-liste-de-l-ue-des-pays-et-territoires-non-cooperatifs-a-des-fins-fiscales.pdf).

An advance pricing agreement can be requested. A country-by-country report may be required.

There are procedures at international level that can be used to settle disputes.

In general, the import of goods into the customs territory of the EU is subject to customs duties, although certain exceptions can apply. Within the EU, goods are subject to VAT rules.

The export of goods outside the customs territory of the EU is not subject to customs duties.

Luxembourg has entered into 88 bilateral tax treaties (including with the US, Canada, UK, France, Spain, Italy, China, Hong Kong, and Germany).

Luxembourg approved the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument) (MLI) in 2019.

Monopolies and restraints on trade are governed by:

The Competition Act empowers the Competition Council (Conseil de la Concurrence) as the sole competition authority in Luxembourg. The Competition Council website (https://concurrence.public.lu/fr.html) contains information about the Council's decisions and the applicable rules. The site is only available in French but does provide an English translation of the Competition Act.

Luxembourg competition law applies to any undertaking with commercial operations in Luxembourg. The Competition Act does not provide for criminal sanctions for competition law violations, but certain provisions of the Luxembourg Criminal Code may be applicable to these offences. For example, Article 311 of the Luxembourg Criminal Code punishes legal or natural persons (including the managers of a company) who, by whatever fraudulent means, have operated an increase or decrease of prices for commodities and goods. Natural persons are punished with imprisonment of one month to two years and with a fine of EUR500 to EUR25,000. This is doubled for legal persons.

The current Competition Act will soon be replaced by a new one as a Bill No 7479, transposing the ECN+ Directive ((EU) 2019/1) is pending. This Bill provides the opportunity to adapt and modernise the Competition Council's functioning and procedures. This is especially relevant in relation to cross-border co-operation with other member states' competition authorities. The Bill will also enable the Competition Council to gain more independence by becoming a public entity. It will be renamed Autorité de concurrence du Grand-Duché de Luxembourg.

The Bill is unlikely to change the following rules on restrictive agreements and practices and unilateral conduct.

The Competition Act prohibits certain anti-competitive practices including price-fixing and concerted practices.

The price of goods, products and services must be freely determined by the market (Article 2, Competition Act). However, in certain circumstances, for example where the structure of the market prevents price competition, prices or margins can be fixed by a Grand Ducal regulation.

Agreements between undertakings, decisions by associations of undertakings, and concerted practices that have as their object or effect the prevention, realisation, or distortion of competition on the market are prohibited (Article 3, Competition Act).

Article 4 of the Competition Act provides for a number of exceptions to Article 3.

Abuse of a dominant position in the market by one or more undertakings is prohibited (Article 5, Competition Act).

Luxembourg does not have merger control legislation, and the Competition Act contains no specific provisions on mergers. There is no prior merger control procedure under Luxembourg law.

However, agreements between undertakings, decisions by associations of undertakings and concerted practices that have as their object or effect the prevention, restriction, or distortion of competition are subject to control by the Competition Council (Article 3, Competition Act). In addition, mergers and acquisitions and the behaviour of the parties involved may also be subject to control after the fact by the Competition Council under Article 5 of the Competition Act.

In its 2016 Utopia decision, the Competition Council confirmed its authority, through reliance on the provisions prohibiting abuse of a dominant position at the national and EU level, to exercise after the fact control of concentrations that strengthen an existing dominant position. This decision reignited the debate among specialists about the need for Luxembourg merger control rules. Ultimately, the Minister of the Economy confirmed in 2016 that the government does not intend to introduce such rules.

Sector-specific rules can apply, for example, to credit institutions under the Financial Sector Act of 5 April 1993. Prior notification to the CSSF is required by acquirers of a qualifying holding in a credit institution or by persons further increasing a qualifying holding as result of which the proportion of the voting rights or capital held would reach or exceed certain thresholds or so that the credit institution would become its subsidiary. The CSSF can then oppose to the transaction based on specific criteria set out in the Financial Sector Act (Article 6(5)-(17), Financial Sector Act).

There are no specific anti-bribery or corruption regulations.

Definition and legal requirements. A patent is an industrial property right granted by the Ministry of the Economy. It is intended to protect new inventions capable of industrial application. Since the entry into force of the amendments to Act of 20 July 1992 introduced by Act of 7 April 2006, biotech inventions also qualify for patent protection.

To be patentable, an invention must:

A patent grants an exclusive right to its holder or beneficiary to exploit the invention and protects the holder against the production, distribution, or sale of the invention by a third party without their prior consent.

Registration. An application for a national patent must be submitted to the Intellectual Property Office (Office de la propriété intellectuelle) (OPI) at the Ministry of the Economy (Ministère de l'Economie). Information about the application process can be found at https://guichet.public.lu/en/entreprises/gestion-juridique-comptabilite/propriete-intellectuelle/propriete-industrielle/brevet.html.

An inventor who files a patent application in Luxembourg can also file an application in other EU member states, and benefits from a 12-month right of priority as from the filing date of the Luxembourg application.

The applicant can also apply to the European Patent Office (EPO) for a European patent covering up to 38 countries on the European continent. A European patent is a bundling of national patents and serves the purpose of simplifying the application process of obtaining protection in several European countries. In the designated countries, a European patent has the same legal status as a national patent.

The applicant can also apply for an international patent with the World Intellectual Property Organisation (WIPO) under the Patent Cooperation Treaty 1970 (PCT).

Enforcement and remedies. The owner of a patent or, if the owner fails to act, any other person with a licence to use the patent can take action for infringement. If there is sufficient proof, the Luxembourg District Court will issue an injunction intended to put a stop to the infringement. It can also order the confiscation or destruction of goods and award damages.

Length of protection. In return for disclosing the invention, the state grants the inventor sole rights to use it for a maximum period of 20 years from the date of filing of the patent.

Definition and legal requirements. A trade mark is a distinctive sign that enables customers to distinguish a particular undertaking's products and services from those of a competitor.

A trade mark refers to the identity of a product or service and can take various forms. A trade mark can be constituted by any graphic representation that serves to distinguish the products or services of a business from those of a competitor. The following types of trade marks are recognised, among others:

A trade mark holder has an exclusive right to exploit the trade mark in countries where the trade mark is registered. The holder can prevent third parties who did not obtain consent from using a sign in the course of trade that:

Protection. Trade marks are protected in Luxembourg by:

In the Benelux region, national registration no longer exists, and trade mark protection extends to all three countries. A trade mark can be registered with the national trade mark office in the relevant Benelux country or with the Benelux Office for Intellectual Property (BOIP), based in The Hague. In Luxembourg, the national office is the Intellectual Property Division of the Ministry of the Economy. Information about the application procedure can be found at: https://guichet.public.lu/en/entreprises/gestion-juridique-comptabilite/propriete-intellectuelle/propriete-industrielle/marque.html.

In addition, if a company's business extends throughout Europe, it is possible to apply for an EU trade mark, which affords full protection throughout the EU. The standard fee to register an EU trade mark, valid for three classes, is between EUR900 and EUR1,050.

There is no protection for an unregistered trade mark, with the exception of well-known marks (art. 6bis Paris Convention). See article 2.19 Benelux Convention on Intellectual Property.

Enforcement and remedies. If the holder of an earlier Benelux trade mark believes that a recently filed trade mark infringes its rights, it can initiate an opposition procedure before the BOIP.

In respect of Benelux trade marks, two protocols were signed in May and December 2014 amending the Benelux Convention on Intellectual Property and were ratified on 17 December 2016. The major amendments introduced by these protocols are as follows:

The holder of a trade mark can also consider:

Length of protection. In general, a trade mark is registered for a certain class of goods or services for a period of ten years from the date of filing, renewable indefinitely.

Definition and legal requirements. A drawing or design refers to the visual and aesthetic appearance of a product, including its shape, layout, or texture, and in general any ornamental aspect that does not result from functional requirements. Drawings are two-dimensional representations whereas designs are three-dimensional representations or objects. A registered drawing or design can provide appropriate protection where the visual aspect of the product forms an integral part of its image.

To be eligible for registration, the drawing or design must:

It is possible to register as an industrial drawing or design any characteristic that is linked solely to the visual aspect of the product rather than to its functionality or to the fact that it can be fitted or matched to another product of a more complex nature.

Purely decorative objects that do not serve a useful purpose and immaterial ideas are excluded from protection.

The owner of a registered design has an exclusive right over its use in products in which the design is incorporated, including designs which are similar or appear identical to the registered design.

Registration. There are two types of registration:

A drawing or design can be protected in one or more countries at the same time. In the Benelux, national registration no longer exists, and protection covers all three countries. Registering a simple drawing or design costs EUR150 plus EUR42 for adding characteristic features. Information about the application procedure can be found at: https://guichet.public.lu/fr/entreprises/gestion-juridique-comptabilite/propriete-intellectuelle/propriete-industrielle/enregistrement-dessin-modele.html.

It is also possible to obtain protection outside the Benelux, in all EU countries. The fee for a single application to the European Intellectual Property Office is EUR350.

If the applicant intends to market its product outside the EU, it must register the creation with the World Intellectual Property Organisation (WIPO). Fees vary depending on the countries where the design is to be protected.

Enforcement and remedies. The holder of a design can bring either:

Length of protection. For both Benelux and Community registered designs, the maximum period of protection is 25 years, with an initial five-year duration as from the date of filing, and the added option to renew it up to four times.

Definition and legal requirements. Community Designs Regulation (6/2002) grants a limited protection to unregistered designs to the extent that they have been made available to the public in the EU, according to the procedures laid down in Article 11(2) of the Community Designs Regulation. The holder of such protected unregistered design has the right to prevent the unauthorised use of the protected unregistered design, but only if the contested use results from the "copying" of the protected unregistered design (Article 19(2), Community Designs Regulation). Registration of a design is therefore still recommended as it allows for prevention of any use of the protected design and not merely of copying.

Enforcement and remedies. The remedies and are the same as for registered designs.

Length of protection. An unregistered design is protected for three years as from the date the design was first made available to the public within the EU.

Definition and legal requirements. Copyright and related rights in Luxembourg are governed by the Act of 18 April 2001 on copyright, related rights and databases, as amended (Copyright Act).

Copyright refers to the rights granted to the creator of an original literary or artistic work. To be protected by copyright, the literary, scientific, or artistic work, including computer programmes and databases, must have a sufficiently original character, and a concrete shape (therefore ideas or concepts are excluded from protection).

All creators of original works are automatically protected by copyright. The copyright holder has an exclusive right and can oppose the amendment or alternation of their work and the reproduction, disclosure, or communication to the public of the work without their consent.

However, certain exceptions apply. In this regard, the Copyright Act was amended by the Law of 3 April 2020 transposing the Marrakesh Directive ((EU) 2017/1564) that provides for additional permitted uses of certain works for the benefit of persons who are blind, visually impaired, or otherwise print-disabled.

Further amendments of the Copyright Act are expected as the following EU Directives adopted in the context of the EU Digital Single Market Strategy still need to be transposed into national law although the transposition deadline expired on 7 June 2021:

Protection. Protection arises automatically, without registration being required, as from the time the work is created. Proof of the date of creation of the work can be provided by any means necessary.

Enforcement and remedies. The civil remedies available are similar to those for trade marks and designs. Criminal sanctions (for example fines or a prison term) are also available to the extent that the copyright infringement is committed in the course of trade with malicious or fraudulent intent. The same is true for putting an author's work into circulation without authorisation. This copyright infringement constitutes the criminal offence of counterfeiting and is sanctioned with a fine of up to EUR250,000. Additional sanctions can also be imposed, for example confiscation or destruction of the counterfeit goods or, in the event of repeated infringement, imprisonment of up to two years.

Length of protection. The protection is valid throughout the creator's life plus another 70 years from their death, thereby benefitting the creator's heirs and beneficiaries. The right holder can transfer all or a portion of the rights, for example by granting a licence to use the work.

Definition and legal requirements. Although trade secrets and confidential information are not considered to be intellectual property as such, Luxembourg law provides for a similar protection. The Act of 26 June 2019 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use, and disclosure (Trade Secret Act) transposes the Trade Secrets Directive ((EU) 2016/943). The protection offered by this law is particularly interesting for companies holding information that has a significant commercial value but does not meet the conditions to be protected by intellectual property laws or for information that companies simply need stay confidential by voluntarily avoiding intellectual property registration.

All kinds of information can benefit from trade secret protection without any registration being required provided that the following cumulative requirements are met:

Protection. Once the information is protected, the acquisition, use, or disclosure of that information without the consent of the trade secret holder will generally be considered as unlawful.

However, in some exceptional cases, the acquisition of the information under protection is allowed. To benefit from this exception, the trade secret must have been acquired under specific circumstances, for example, an independent discovery or creation or the study or disassembly of a product publicly or lawfully available (that is, typically reverse engineering).

Enforcement and remedies. The holder of a trade secret has a number of proceedings and remedies at its disposal. They can bring either:

Length of protection. Trade secret protection is not limited in time and may continue as long as the secret is not publicly revealed. However, the trade secret holder has to introduce the above proceedings within two years from the discovery of the unlawful acquisition, use or disclosure. (Article 16, Trade Secret Act.)

Other IP rights covered by the Copyright Act of 18 April 2001 include protection for:

The Luxembourg Act of 3 June 1994 transposes the Self-employed Agents Directive (86/653/EEC) and regulates the contractual relationship between agents and principals.

There is no specific registration formality applying to commercial agents. However, as they are deemed to be merchants, the latter must hold a business permit from the Ministry of Economy.

After termination of the contract, the commercial agent will be entitled to an eviction indemnity of a maximum of one year of their remuneration (calculated on the average annual remuneration of the previous five years) if the following cumulative conditions are met:

(Article 19, Commercial Agents Act.)

Lastly, to the extent that the commercial agent can prove that his damages are not entirely compensated through the eviction indemnity and potentially the compensation in lieu of notice, he may claim additional compensation.

There is no specific legislation on distribution agreements. However, there is some case law on this subject. For example, the Luxembourg Court of Appeal has held that the marketing of products in one's own name and on one's own behalf is an essential aspect of a distribution agreement, which distinguishes it from an agency agreement (Luxembourg Court of Appeal, 6 July 2011, No. 35365).

The Act of 24 July 2014 on vertical distribution agreements in the automobile industry regulates agreements between suppliers and distributors.

There is no specific legislation on franchising, but Luxembourg case law does provide a definition: a contract in which the franchisor grants the franchisee, a merchant or autonomous enterprise, the use of its trade mark and trade name. It also grants its assistance and experience, at all times and in all areas, to make the best use of them, in the interests of both parties. In return, the franchisee undertakes, in addition to the payment of certain financial benefits, to ensure that its business is operated in compliance with the franchisor's standards and guidelines (Luxembourg District Court, 9 March 1990, No. 37928).

The main piece of legislation is the Act of 14 August 2000 on electronic commerce (eCommerce Act), as amended, which partially implements:

The eCommerce Act also regulates the sending of unsolicited commercial communications and the liability of online intermediaries that provide mere conduit, caching, or hosting services.

In a business-to-consumer context, the eCommerce Act is complemented by the Luxembourg Consumer Code, as amended, which sets out further requirements for concluding an electronic contract.

In relation to electronic payment systems, Luxembourg has implemented the Payment Services Directive (2007/64/EC) by the Act of 10 November 2009, as amended. This Act was amended by:

Luxembourg has also implemented Directive (2008/8/EC) on the place of supply of services, by the Act of 26 May 2014 amending the Act of 12 February 1979 on value added tax.

Luxembourg is one of the first EU member states to provide a statutory framework for the dematerialisation of documents under the Act of 25 July 2015 on electronic archiving, and its executing Grand Ducal Regulations of 25 July 2015.

Generally, digital business (including online platforms) must comply with the relevant provisions set out in the eCommerce Act and Luxembourg Consumer Code (see Question 33).

Online intermediaries that perform mere conduit, caching, or hosting services benefit from a liability privilege and cannot be held liable if strict conditions are met (Articles 60 to 62, eCommerce Act). Those articles of the Luxembourg eCommerce Act mirror the liability privilege provided in Articles 12 to 15 of the E-Commerce Directive. However, the rules are subject to change given the proposal for a Regulation on a Single Market For Digital Services (Digital Services Act) published by the European Commission on 15 December 2020. This foresees a strengthening of the rules for providers of online intermediary services and online platforms, including specific rules for faster removal of illegal content and comprehensive protection for users' fundamental rights online.

Platforms providing online intermediation services towards business users and corporate website users must also comply with the P2B Regulation ((EU) No 2019/1150). The P2B Regulation aims to protect professional users of these services by improving transparency and prohibiting practices that are regarded as unfair. To ensure proper enforcement of the P2B Regulation, Luxembourg recently adopted the Act of 5 March 2021. This provides that the Ministry of the Economy will designate organisations and associations to represent business users and corporate website users in proceedings before the national competent courts to cease or prohibit any act contrary to its provisions.

In a business-to-business and business-to-consumer context:

In a business-to-consumer context, Articles L.224-4 and 5 (advertising in relation to consumer credits) and Articles L.226-5 and 6 (advertising in relation to mortgages) of the Luxembourg Consumer Code, as modified, apply.

The eCommerce Act sets out strict rules in relation to the sending of unsolicited commercial communication, a commercial communication being defined as a communication of any kind designed to directly or indirectly promote the goods, services, or image of a company, organisation, or person pursuing a commercial, industrial or craft activity or exercising a regulated profession (Article 48, eCommerce Act). Those rules can be summarised as follows:

In addition, sending a commercial communication implies the processing of personal data, leading to the applicability of the General Data Protection Regulation ((EU) 2016/679) (GDPR), which provides for additional rights for data subjects that form the subject of direct marketing.

Promotional offers are not specifically regulated in Luxembourg and are allowed throughout the year.

However, the Act of 23 December 2016 on end-of-season sales and sidewalk sales and misleading and comparative advertising strictly regulates the use of the term sales (solde(s)) which can only be applied by traders in relation to the sale of their products to consumers at a reduced price during the summer and winter sales periods. The duration of these periods is set each year by means of a Grand Ducal regulation.

Previously, the organisation of prize draws was subject to several conditions under the Act of 30 July 2002 regulating certain commercial practices and punishing unfair competition, but this Act was repealed by the Act of 23 December 2016 which does not contain similar provisions. Therefore, there is currently a legal gap concerning prize draws. Some traders continue to apply the requirements set out in the Act of 30 July 2002 as good practice.

Any processing of personal data is governed by the GDPR, which has applied directly in Luxembourg since 25 May 2018. The GDPR is implemented and complemented by Luxembourg legislation that was adopted and published on 1 August 2018. This legislation provides for rules on the Luxembourg National Commission for Data Protection's functions and enforcement powers and on the following types of processing:

To the extent that the processing of personal data takes place in the e-communications sector, these rules are complemented by specific rules set out in the Act of 30 May 2005 on ePrivacy, as amended. In the future the Act may be replaced by the pending EU E-Privacy Regulation which will apply directly in Luxembourg.

Product liability is governed by the Product Liability Act of 21 April 1989, as amended. According to this Act, a claimant must establish:

A civil action must be brought within three years from the date on which the claimant became aware, or should reasonably have become aware, of:

If the concerned defective product has been on the market for more than ten years, no claim can be brought unless legal proceedings have already been introduced.

The General Product Safety Act of 31 July 2006 provides that producers must place only safe products on the market and must provide consumers with the relevant information to enable them to assess the risks inherent in a product. Violations of this legislation can be subject to a criminal fine ranging from EUR251 to EUR25,000. The Luxembourg Institute for Standardisation, Accreditation, Security and Quality of Products and Services (ILNAS) has authority to monitor the general safety of consumer products under this Act.

In addition, Articles 1641 to 1648 of the Civil Code provide for a hidden defect liability regime in relation to the sale of goods. According to this regime, a buyer can bring an action for liability against the seller in relation to any latent defect of the thing sold which renders it unfit for the use for which it was intended. The buyer must bring the action within one year after having reported the defect to the seller (which must be done on short notice from the time the defect should have been discovered). These rules rely on strict liability, which means that the buyer does not need to prove that the seller was at fault.

Other legislation applies to specific sectors.

Main activities. The Luxembourg Competition Council (Conseil de la Concurrence) is an independent administrative authority whose role is to guarantee free competition and ensure the proper functioning of markets, in particular by ensuring proper enforcement of national and European competition rules. The main task of the Luxembourg Competition Council is therefore to investigate and establish infringements of competition law, for example cartels and abuses of a dominant position.

Main activities. The National Commission for Data Protection (Commission Nationale de la Protection des Données (CNPD)) is the Luxembourg data protection authority. It verifies the legality of the processing of personal data and ensures the respect of personal freedoms and fundamental rights with regard to data protection and privacy. The CNPD verifies if personal data are processed in accordance with the following provisions:

All the important considerations are contained in this Q&A.