Full text: Taxation of foundations in Europe

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7. LUXEMBOURG 
7.1. General 
The Luxembourgian Income Tax Act (memorial A No 76; respective valid version in Le Code 
Fiscal Luxembourgois Vol.II) is based on the German Income Tax Act. The final withholding 
tax at source is provided for in Art 146 et seq. Loi de l’Impôt sur le Revenu, L.I.R, which 
states that domestic income from dividends, shares of profit, and bonds is subject to final 
withholding tax at source in addition to any additional tax it may be subject to depending on 
the amount of the profit distributions (of the borrower). Other domestic33 earnings from equi-
ties, capital shares, participation certificates and shareholdings are also subject to final with-
holding tax34.  
 
The final withholding tax at source in the amount of 20% is levied on income from capital 
assets, that is, domestic capital income from shareholdings (dividends). Interest income is 
subject to a 10% final withholding tax at source. In accordance with the EU Savings Tax Di-
rective of 2005, the initial tax rate, which amounts to 15%, is progressively raised to 20% and 
35%35. Profit distributions to holders of controlling equity stakes in a company are tax-exempt 
if this company is fully tax-liable and domiciled in Luxemburg and does not present the char-
acteristics of a holding company. 
 
The Luxembourgian foundation law is closely tied to the non-profit association (association 
sans but lucratif) law. The Act of 21 April 1928 for Associations and Foundations, hereafter 
“Foundation Act” (Gesetz vom 21. April 1928 über die Vereine und die Stiftungen ohne Ge-
winnzweck) was amended on 22 February 1984, on 4 March 1994, on 1 August 2001 and on 
19 December 2002. Currently, approximately 150 foundations with legal personality exist in 
Luxembourg. The majority of these foundations are active in the areas of education and in 
social projects36. Pursuant to the will of the Luxembourgian legislators, the Belgian provisions 
concerning the application of the Foundation Act and Belgian case-law is also applicable to 
Luxembourg. Pursuant to Article 27 Foundation Act, a foundation must use its profits to pur-
sue a philanthropic, social, religious, scientific, artistic, educational, athletic or touristic pur-
pose. In contrast to Belgium, Luxembourg only recognises foundations that serve the public 
interest or so-called public utility purposes; there are no foundations for private benefit. 
                                                
33 Domestic capital income is all earnings of a natural person domiciled in Luxembourg, a private company domi-
ciled or headquarted in Luxembourg, or a Luxembourgian public corporation.  
34 Cf. Knist (1996), p. 17. 
35 Cf. Fort (2007), p. 32. 
36 Cf. Beissel/Gabriel (2007), p. 1140.
        

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