Luxembourg – UK Double Taxation Treaty

The treaty on avoidance of the double taxation between Luxembourg and UK was signed in 1967. Since then, the agreement was amended by several protocols, signed in 1978, 1983 and 2009. The latest protocol was concluded in order to update specific provision on the exchange of tax information between the two contracting states. If you are an investor interested in opening a company in Luxembourg, our company formation agents can offer you details on the convention which now aligns to the Organisation of Economic Cooperation and Development tax standards.

Taxes under the Luxembourg – UK Treaty

The agreement between the contracting states applies to several taxes on income. In case of the United Kingdom, the taxes applicable to a company with operations here are the following:

•    the income tax;
•    the corporation tax;
•    the petroleum revenue tax;
•    the development land tax;
•    the capital gains tax.

When setting up a company in Luxembourg, you should know that the state will apply the following taxes:

•    the tax fees of directors of companies;
•    the corporation tax;
•    the capital tax;
•    the communal trade tax (which includes the tax on salaries).

Provisions of the Luxembourg – UK Agreement

A permanent establishment of a company set up in Luxembourg represents the place in which the company carries a part of the operations or the entire operations; as such, it may represent a building, a factory, a branch or a mine; it also includes a building or construction site, if the operations are carried out on a continuous basis for more than six months.

In the situation in which a company in UK has a permanent establishment in Luxembourg, the profits arising from the business in Luxembourg will only be taxed here. For the businesses involved in shipping or international aircraft activities, the profits will be taxed in the state in which the management of the company is situated.

Royalties arising in UK, which have to be paid to a resident of Luxembourg will only be taxed in Luxembourg.  Royalties can also be paid in the contracting state in which they arise, in accordance to the law of the state, if recipient of the royalties is the beneficial owner. As such, the agreement stipulates that the tax will be of maximum 5% of the gross amount of the royalties.

If you need further information on the corporate taxes applicable when opening a company in Luxembourg, please contact our company formation agents, who can provide you an in-depth presentation of the business market.