Luxembourg introduced a temporary tax in 2015 to help balance the national budget, but it is due to expire at the end of this year. The tax applies to both employment or professional and investment income, so it needs to be factored into calculations regarding investment income earned during 2017.
Any gains made by investors when they sell shares, bonds or investment funds may be subject to capital gains tax. The rules on this create an important distinction between long-term and short-term gains. Short-term capital gains are taxed as current income, so may be subject to a rate of up to 42%.
Long-term gains receive more favourable treatment, including an exemption for the first €50,000 gained over a period of 10 years. Taxation of remaining gains is levied at 50% of the taxpayer’s marginal income tax rate. The definition of ‘long-term’ depends on the type of asset – at least two years for property, but just six months for shares, bonds and investment funds. Gains on non-financial assets and individuals’ private residences are exempt.
Taxation of dividends and interest of foreign origin is complex, and investors have some leeway over the way it is taxed. For example, they may request that all income from other foreign countries is aggregated, and for the application of a credit equivalent to the amount of Luxembourg income tax applicable to this total. To some extent, this will depend on the source of the income, and whether it comes from one, or multiple countries.