Taxable dividends
\nAll income distributed by the company to its partners in the broad sense is considered dividends. This includes both regular dividends and any hidden distributions.
\nRegular dividends
\nIncome distributions (dividends, profit shares, and other proceeds allocated due to shares, equity interests, profit-sharing rights, or other holdings in the companies concerned) that are officially approved by the shareholders’ meeting and recorded as such in the accounts are considered regular dividends.
\nHidden Distribution of Profits (HDP)
\nWhen a partner receives benefits that they would not normally have received if they were not a partner, the tax authorities reclassify these benefits as hidden distributions of profits.
\nExamples: interest-free loans or loans at below-market rates, renting out property without charging rent, selling at a price lower than the item’s market value, or other benefits granted to partners\/shareholders.
\nHidden profit distributions are included in the taxable income of both the debtor company and the recipient.
\nExample:
\nThe company sells a building worth 1,000 to the shareholder for 800, the purchase cost of the building being 400.
\nThe company would not have agreed to sell the building to a third party for less than its value (1,000):
\nthe sale is then deemed to have been made at a price of 1,000 and not 800 ;
\nthe company’s taxable profit is 600 (1,000 – 400) and not 400 (800 – 400);
\nthe benefit requalified as a hidden distribution of profits amounts to 200 (600 – 400).
\nLuxembourg company distributing to a partner resident in Luxembourg
\nLuxembourg distributing company
\nJoint-stock companies must declare their business profits so that they are subject to corporate income tax prior to any distribution to their partners\/shareholders.
\nWhen they distribute them in the form of dividends to their associates\/shareholders resident in Luxembourg, they must :
\ndeduct a 15% withholding tax ;
\nthen send a declaration of the withholding tax on capital income (model 900F) and pay the amount withheld to the relevant revenue office (Luxembourg, Ettelbruck, Esch-sur-Alzette) of the Administration des contributions directes (ACD), within 8 days of the income being made available.
\nFor the resident beneficiary, this 15% withholding tax represents an advance on the income tax due by the beneficiary.
\nBeneficial resident shareholder: half-dividend system
\nThe beneficiary receiving the dividends must declare them as income from movable capital when filing his or her Luxembourg income tax return.
\nAs these dividends have already been taxed at the level of the distributing company, they can be exempted up to 50% if the distributing company is :
\nor a fully taxable resident company;
\nor a capital company resident in a country that has signed a tax treaty with Luxembourg and subject to a tax comparable to the IRC (tax rate of at least 10.5%);
\nor an EU-resident company covered by the Parent-Subsidiary Directive, but which does not meet the shareholding requirements (length of holding, 10% threshold or acquisition cost) to benefit from the parent-subsidiary regime.
\nIncome tax will therefore be calculated on 50% of the gross dividends received (before application of the withholding tax). The recipient will then pay the difference between the withholding tax already applied and the total tax due.
\nExample: if a company distributes a dividend of 100 euros and the taxpayer’s marginal tax rate is 39%, the tax burden is calculated as follows:
\nWithholding tax
\nGross dividend paid
\n100
\nWithholding tax (15%)
\n– 15
\nNet dividend received
\n85 <\/p>\n
Income tax
\nTaxable dividend (50% of gross dividend)
\n50
\nTotal tax due (39%)
\n(19,5)
\nDeduction already collected
\n– 15
\nTax due (19.5 – 15)
\n– 4,5
\nNet dividend after tax (100 – 19.5)
\n80,5
\nLuxembourg company distributing to a partner resident outside Luxembourg
\nLuxembourg distributing company
\nJoint stock companies must declare their business profits for corporate income tax purposes prior to any distribution to their partners\/shareholders.
\nWhen they distribute them in the form of dividends to their associates\/shareholders residing outside Luxembourg, they must :
\ndeduct withholding tax :
\nat the standard rate of 15% ;
\nor, where applicable, at the reduced rate provided for in the double-taxation treaty applicable between the 2 countries;
\nthen send a declaration of the withholding tax on capital income (model 900F) and pay the withholding tax to the relevant revenue office (Luxembourg, Ettelbruck, Esch-sur-Alzette) of the Administration des contributions directes (ACD), within 8 days of the income becoming available.
\nNon-resident beneficiaries
\nThe beneficiary who receives the dividends must, in principle, declare them to the tax authorities in his or her country of residence.
\nIf the distributing company has applied a higher rate of withholding tax than that provided for in the applicable tax treaty, the beneficiary may request repayment of the excess withholding tax from the Direct Tax Administration.
\nLuxembourg subsidiary distributing to its parent company: parent-subsidiary regime
\nIncome distributed by the subsidiary to the parent company is exempt from withholding tax if, on the date the income is made available, the conditions for benefiting from the parent-subsidiary regime are met.
\nExample 1: SA1, a Luxembourg public limited company, distributes a dividend to SA2, an Italian company which has held 13% of SA1 for 2 years.\u2028 SA1 has no withholding tax to pay, as its holding is greater than 10%.
\nExample 2: same data except that the percentage of capital held is only 7%. \u2028 In this case, the withholding tax rate provided for in the Italian tax treaty will be applied, i.e. 15%, as the interest held is less than 10%.
\nExample 3: However, if SA2 has paid at least 1,200,000 euros for its shareholding in SA1, the dividends may be paid free of withholding tax under the parent-subsidiary regime.
\nSoci\u00e9t\u00e9 \u00e9trang\u00e8re distribuant \u00e0 un associ\u00e9 r\u00e9sidant au Luxembourg
\nSoci\u00e9t\u00e9 distributrice \u00e9trang\u00e8re
\nLes soci\u00e9t\u00e9s \u00e9trang\u00e8res qui distribuent des dividendes \u00e0 leurs associ\u00e9s \/ actionnaires r\u00e9sidant hors du Luxembourg doivent, le cas \u00e9ch\u00e9ant, pratiquer la retenue \u00e0 la source pr\u00e9vue par l\u2019Etat dans lequel elles sont \u00e9tablies, conform\u00e9ment aux conventions fiscales en vigueur.
\nAssoci\u00e9 b\u00e9n\u00e9ficiaire r\u00e9sidant au Luxembourg
\nLe b\u00e9n\u00e9ficiaire r\u00e9sidant au Luxembourg qui re\u00e7oit les dividendes doit les d\u00e9clarer en tant que revenus de capitaux mobiliers lors de sa d\u00e9claration d\u2019imp\u00f4t sur le revenu au Luxembourg.
\nAs these dividends have already been taxed at the level of the distributing company, they can be exempted up to 50% if the distributing company is :
\nor a fully taxable resident company;
\nor a capital company resident in a country that has signed a tax treaty with Luxembourg and subject to a tax comparable to the IRC (tax rate of at least 10.5%);
\nor an EU-resident company covered by the Parent-Subsidiary Directive, but which does not meet the shareholding requirements (length of holding, 10% threshold or acquisition cost) to benefit from the parent-subsidiary regime.
\nIncome tax will therefore be calculated on 50% of the gross dividends received (before application of the withholding tax). The beneficiary will then pay the difference between the withholding tax already applied and the total tax due.
\nIf the distributing company has applied a higher rate of withholding tax than that provided for in the applicable tax treaty, the beneficiary may request repayment of the excess withholding tax from the tax authorities of the country in which the distributing company is established.<\/p>\n","protected":false},"excerpt":{"rendered":"
Capital companies, after subjecting their profits to corporate income tax, may distribute any dividends received…<\/p>\n","protected":false},"author":6,"featured_media":2854,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-3084","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry"],"yoast_head":"\n