Corporate tax in Luxembourg 2026: 23.87% in the capital, and everything that sits underneath it

A Luxembourg company earning more than €200,000 and registered in Luxembourg City pays a combined 23.87% on its profits. That single figure is three separate taxes stacked on top of one another, and understanding the stack matters, because two of the three can be reduced and one of them depends entirely on where the company has its registered office.

The three layers

The headline rate breaks down as follows for a company in the top bracket:

• Corporate income tax of 16%. The rate for taxable income exceeding €200,000, in force since 2025.
• A solidarity surtax of 1.12%. This is 7% of the corporate income tax, not 7 percentage points — 7% of 16% is 1.12%, giving an aggregate 17.12%.
• Municipal business tax of 6.75% in Luxembourg City.

Add them and you reach 23.87%. Below the top bracket the arithmetic changes:

• Taxable income up to €175,000: corporate income tax of 14%, or 14.98% with the surtax.
• Between €175,000 and €200,001: a sliding bracket of €24,500 plus 30% of the income above €175,000, then multiplied by 1.07 for the surtax. The apparent overlap at the €200,000 boundary reproduces the statute's own wording.
• Above €200,000: the 16% rate applies.

The commune is a real variable

Municipal business tax is built from a national base rate of 3% multiplied by a multiplier each commune sets for itself. Luxembourg City applies 225%, giving 6.75%. Other communes set lower multipliers, so the combined burden genuinely differs across the country — and unlike almost every other feature of the system, it is fixed by a decision the company makes on day one.

Companies subject to corporate income tax also receive an allowance of €17,500 against adjusted business profit before the 3% base rate applies. That is a smaller allowance than the €40,000 available to sole traders and other taxpayers outside corporate income tax, and it means the effective percentage on modest profits is lower than the 23.87% headline suggests.

Net wealth tax, and the minimum nobody escapes

Luxembourg still levies a net wealth tax on companies, though it was abolished for individuals in 2006. The ordinary rates are:

• 0.5% on taxable net wealth up to €500 million.
• €2.5 million plus 0.05% of the portion above €500 million.

More significant for ordinary businesses is the minimum charge, which is due whatever the profit. Since the 2025 reform it runs on a three-band scale keyed to the total balance sheet:

• Balance sheet up to €350,000: €535.
• Above €350,000 and up to €2 million: €1,605.
• Above €2 million: €4,815.

The minimum is reduced automatically by the previous year's corporate income tax, and companies may elect to create a net wealth tax reserve to lower the charge. A loss-making holding company with a large balance sheet nonetheless pays €4,815 a year, which is the point of the mechanism.

The participation exemption

The regime that made Luxembourg a holding jurisdiction exempts qualifying dividends and capital gains on substantial shareholdings. The conditions under article 166 work as alternative tests:

• A holding of at least 10% of the subsidiary's capital; or
• An acquisition price of at least €1,200,000 for dividends, or €6,000,000 for capital gains.
• A minimum holding period of twelve uninterrupted months, where a commitment to complete the remaining period can satisfy the test.

The two acquisition-price thresholds are different figures for different income streams, and confusing them is the most common error in structuring. A €2 million stake below 10% qualifies for exempt dividends but not for an exempt capital gain.

Pillar Two: the floor under the floor

Luxembourg has implemented the OECD global minimum tax. It applies to multinational and large domestic groups with consolidated annual revenue of €750 million or more in at least two of the four preceding fiscal years, through the Income Inclusion Rule, a Qualified Domestic Minimum Top-Up Tax and the Undertaxed Profits Rule.

The compliance calendar has now started: filing deadlines began on 30 June 2026 for the 2024 financial year. For groups in scope, the domestic top-up tax is the operative mechanism — it keeps any additional tax in Luxembourg rather than surrendering it to another jurisdiction's inclusion rule. For the very large majority of Luxembourg companies, which fall far below €750 million, Pillar Two changes nothing at all.

Beyond the rate: what decides the actual bill

For most companies the effective burden is determined less by the percentage than by four structural rules:

• Loss carry-forward. Losses arising from 1 January 2017 onwards can be carried forward for 17 years. Losses generated before that date remain available indefinitely. There is no carry-back, so a profitable year cannot be sheltered by a subsequent loss — only by an earlier one.
• The interest limitation rule. Implementing the EU anti-tax-avoidance directive, net borrowing costs are deductible only up to 30% of EBITDA, subject to a safe harbour of €3 million below which the restriction does not bite. Highly leveraged structures feel this before they feel the rate.
• Tax consolidation. A group can elect to be assessed as a fiscal unit, offsetting the losses of one member against the profits of another, subject to a qualifying shareholding and a minimum commitment period. For a group with one loss-making operating company and one profitable one, this is worth more than any rate change.
• Transfer pricing. Intra-group transactions must be priced at arm's length and documented. This is where most Luxembourg audits actually land, and the adjustment risk is usually larger than the headline rate on the same profit.

The pattern is consistent: Luxembourg competes on a moderate rate combined with a wide set of exemptions and credits, and the outcome for any particular company depends on which of those it can reach.

Funds: subscription tax, not corporate tax

Investment funds are largely outside the corporate tax system and instead pay an annual subscription tax on net assets:

• 0.01% for institutional and money-market funds.
• 0.05% for other funds.
• Reduced rates of 0.04%, 0.03%, 0.02% or 0.01% according to the proportion of sustainable assets, on a scale running from 5% to more than 50%.
• Listed UCITS exchange-traded funds are exempt as of 2025.

What a company actually files

Corporate income tax and municipal business tax are both paid in quarterly advances before the annual assessment, and the two run on different calendars — income tax advances on 10 March, June, September and December, municipal business tax on 10 February, May, August and November. Each instalment is normally a quarter of the most recently assessed tax, which means a company whose profits have fallen can be paying on a year it will not repeat until it asks for the advances to be amended.

Companies under the normal VAT filing regime with at least 500 annual transactions and turnover of €112,000 or more must also be able to produce the FAIA standard audit file on request.

What to watch

Two directions of travel matter. Domestically, the rate has been falling — corporate income tax dropped from 17% to 16% at the top and from 15% to 14% at the bottom in 2025, taking the capital's combined rate from 24.94% to 23.87% — and successive budgets have added targeted credits rather than broad cuts. Internationally, Pillar Two sets a floor that limits how far any further reduction can go for large groups, which is precisely why competition has shifted towards credits, exemptions and administrative speed instead of the headline rate.

Our coverage of the 2026 corporate tax package, the startup investment tax credit and the 2026 budget tracks the measures as they land.