Luxembourg and Germany signed a double tax treaty
that will replace the original treaty since 1958. The agreement concerns the taxes on income for companies and individuals, the net wealth tax and the withholding taxes for dividends, royalties and interest.
The double tax treaty
is beneficial for foreign investors
in Luxembourg from Germany and vice versa. At the same time, the convention helps the two governments fight against tax evasion and represents a step towards a better cooperation between the two neighboring countries.
Benefits brought by the double tax treaty
The treaty reduces the withholding tax on dividends from 10% to 5%, if participation is held by a company. In all other cases, the standards treaty rate for the withholding tax on dividends remains 15%. The withholding tax on interest remains 0% and that on royalties remains set at 5%.
The current double tax treaty between Germany and Luxembourg also changes the duration for permanent establishments. Building sites and construction and installation projects are considered permanent establishments, if their duration exceeds 12 months. The previous period was of only six months.
According to the treaty, Germany has the right to levy taxes according to its taxation laws on dividends derived from rights or debt-claims having the right to participate in profits, including income derived by a silent partner or from profit sharing bonds, provided that they are deductible from the profits of the debtor of such income. The state where the recipient of interest payments resides has the exclusive rights to apply taxes on that interest.
The taxes to which the treaty applies
The double tax treaty between Luxembourg and Germany applies to residents of one or both countries. For Germany, the taxes to which the treaty applies are the income tax, the corporate tax, the business tax and the wealth tax.
The Luxembourg taxes for which the convention for the avoidance of double taxation applies are: the income tax, the corporate tax, the business tax and the wealth tax, including any supplements levied for these taxes.
Our company formation agents in Luxembourg
can give you more details about taxation in Luxembourg
and how your foreign company can comply with these rules.