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Distribution of Dividends - Business - Guichet - Lu - Administrative Guide - Luxembourg
Distribution of Dividends - Business - Guichet - Lu - Administrative Guide - Luxembourg
Business Taxation Taxation of business profits / assets Taxation of profits distributed by the business Distribution of dividends
Distribution of dividends
Large businesses SMEs
Who is concerned
A company that generates profits remains the owner of said profits for as long as they are not distributed. Profits are subject to
corporate income tax (impôt sur le revenu des collectivités - IRC) at the level of the company.
How to proceed
The company can distribute the profits in the form of dividends to their partners / shareholders in proportion to their shares in the
Forms / Online services company. At the time of distribution of profits, the dividends become taxable at the level of the beneficiaries.
In order to avoid hampering the ability of companies to finance their activities, there are several steps that can be taken to limit or
Who to contact eliminate economic double taxation.
> the country in which the registered office of the distributing company is located;
> the beneficiary's personal capacity and country of residence;
> the size of the shareholding if the dividends are paid by a subsidiary of the parent company.
Who is concerned
After having declared their profits for corporate income tax purposes, capital companies may distribute all or part of the profits to their
partners.
Depending on the capacity of the partner or the size of his shareholding, the company will have to deduct withholding tax on
investment income (retenue à la source sur revenus de capitaux - RRC) from these dividend payments.
Where applicable, the partner/shareholder must then pay the remaining tax due on their tax return.
Partnerships do not pay dividends. Tax on income from partnerships is payable by its partners, whether they have received this
income or not. The partners must therefore declare their share of the business profit on their income tax return.
How to proceed
TAXABLE DIVIDENDS
Broadly speaking, all income distributed by a company to its partners is a dividend. This includes both regular dividends and any
hidden distributions.
Regular dividends
Income distribution payments (dividends, shares of profit and other income allocated in respect of shares, capital shares, profit shares
or other equity held in the companies concerned) officially approved by all partners and recorded in the accounts as such are
considered regular dividends.
Examples: no interest loans or at a rate below the market rate, lease of buildings without payment of rent, sale of a product
below its real value, and other advantages granted to partners/shareholders.
The hidden distribution of profits is included in the taxable income of the paying company and of the beneficiairy.
Example:
The company sells a property worth EUR 1,000 to the shareholder for EUR 800, with the purchase cost of the property being
EUR 400.
The company would not have agreed to sell the property to a third party for less than its value (EUR 1,000):
> the sale is therefore considered to have been made for EUR 1,000 and not EUR 800;
> The company's tax gain therefore is EUR 600 (1,000 - 400) and not 400 (800 - 400);
> the advantage is reclassified as a hidden distribution of profits and is EUR 200 in this instance (600 - 400).
When distributing income in the form of dividends to their Luxembourg resident partners/shareholders, they must:
This 15 % withholding tax constitutes an advance payment of the income tax payable by the beneficiary.
As the distributing company has already paid tax on the dividends paid out, they may benefit from an exemption of up to 50 % if the
distributing company is:
The income tax calculation will therefore be based on 50% of the gross dividends received (before deducting withholding tax).
Beneficiaries will then pay the difference between the withholding tax already deducted and the total amount of tax payable.
Example: if a company pays a dividend of EUR 100 and the taxpayer's marginal tax rate is 39 %, the amount of tax payable is
calculated as follows:
WITHHOLDING TAX
INCOME TAX
When distributing income in the form of dividends to their non-resident partners/shareholders, they must:
If the distributing company has applied a withholding tax rate higher than that stipulated in the relevant tax treaty, beneficiaries
may submit a request for the refund of the excess payment to the Luxembourg Inland Revenue.
Example 1: SA1, a Luxembourg société anonyme (public limited company), pays a dividend to SA2, an Italian company which has
held 13 % of SA1 for two years.
SA1 does not need to deduct a withholding tax as the shareholding is greater than 10%.
Example 2: take the same data except that the stake held is 7 %.
In this case, the withholding tax rate stipulated in the Italian tax agreement, i.e. 15 %, applies as the stake held is less than 10 %.
Example 3: however, if SA2 has paid at least EUR 1,200,000 for its shareholding in SA1, the dividends paid may be exempt from
withholding tax, in accordance with the parent/subsidiary regime.
As the distributing company has already paid tax on the dividends paid out, they may benefit from an exemption of up to 50 % if the
distributing company is:
The income tax calculation will therefore be based on 50% of the gross dividends received (before deducting withholding tax).
Beneficiaries will then pay the difference between the withholding tax already deducted and the total amount of tax payable.
If the distributing company has applied a withholding tax rate higher than that stipulated in the relevant tax treaty, beneficiaries
may submit a request for the refund of the excess payment to the tax administration in the country where the distributing
company is established.
FR DE
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Who to contact
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L-2982 Luxembourg
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Related procedures
> Taxation of interest payments to lenders - Withholding tax
> The parent-subsidiary regime
> Identifying and reporting dividend income
LEGAL REFERENCES
> Loi modifiée du 4 décembre 1967
concernant l'impôt sur le revenu
Last update 06.02.2017
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