According to the “Paying Taxes 2010” by PWC and the World Bank, Luxembourg ranks 15th in the world and 3rd in the EU in terms of the “ease of paying taxes”, based on average tax liabilities and the time required to file tax returns. The study details tax rates, focusing on how taxes are applied and the kinds of deductions available. On average, annual corporate tax returns can be completed in 59 hours in Luxembourg. The report also calculates a “Total Tax Rate” which takes all business taxes and compares this with pre-tax profits; by this measurement, Luxembourg is ranked the lowest in the EU with a ratio of 20.9% compared to 44.9% in Germany, 57.3% in Belgium and 65.8% in France, thus reflecting the Grand Duchy’s competitiveness.

The Total Tax Rates for the EU

Source: PWC, Paying Taxes 2010
Note: The chart shows the TTR for the economies in the EU by type of tax.

Number of hours to comply across the EU

Source: PWC, Paying Taxes 2010
Note: The chart shows the hours to comply for the economies in the EU by type of tax.

Low tax burden (ranking out of 183 economies)

Source: World Bank, PwC

For more go to http://www.doingbusiness.org/Taxes

Not only are tax rates low in Luxembourg, but the rules allow for flexibility in consolidating and structuring. Luxembourg f.ex. does not impose any withholding tax on the payment of interest, except in specific cases such as interest on profit participating bonds or payment of interest.

Industry-specific tax allowances regarding intellectual property have helped make Luxembourg a very attractive location, in addition to having the lowest rate of VAT (15%) in the EU and very competitive employee social charges. For example, a recent PwC survey showed a married couple with two children could expect to receive 72% of their gross salary at a total cost of 111% to the employer, compared to 68%/112% in the UK, 58%/111% in Germany and 48%/149% in France.

A TAX EFFICIENT LOCATION FOR INTERNATIONAL CORPORATE STRUCTURES

Luxembourg maintains a wide network of double tax avoidance treaties with more than 60 countries. Low or zero withholding tax on dividend payments, application of participation exemption rules to dividend income and capital gains made on the sale of shareholdings or on company liquidation, as well as specific tax incentives on intellectual property income and capital gains, enable the consolidation and management of international corporate structures in Luxembourg to be quite tax efficient.

MAP OF LUXEMBOURG'S DOUBLE TAX TREATIES (2011)