Part II · Jurisdictions · No. 11

Luxembourg

A small EU member state with disproportionate weight in cross-border holding and asset-management structures. The SOPARFI corporate vehicle, the SPF family wealth vehicle, the lowest EU standard VAT, the former Luxembourg Freeport (now the Luxembourg High Security Hub), and an enormous fund industry combine to make Luxembourg a central node in European private-wealth structuring.

Why this jurisdiction matters

Luxembourg is in the EU and the eurozone, so its entities have full EU passport rights for funds, banking, and corporate purposes. It combines EU access with a tax regime favorable to holding companies under the participation exemption. Luxembourg undertakings for collective investment held about €6.2 trillion in net assets at 31 March 2026 (CSSF), and ALFI puts total fund assets, including alternative funds, at more than €8 trillion. It is Europe’s largest fund domicile and the second-largest in the world after the United States.

The relevant tax regime

• Corporate income tax. 16% CIT (from tax year 2025, down from 17%), plus a 7% solidarity surcharge and municipal business tax (6.75% in Luxembourg City), for a combined rate of 23.87% in Luxembourg City (2025–2026).
• Participation exemption. Qualifying dividends and capital gains on participations exempt from corporate tax — the basis of SOPARFI structuring.
• SPF (Société de Gestion de Patrimoine Familial). A family wealth-holding vehicle exempt from corporate income tax, municipal business tax and net wealth tax. It pays a 0.25% annual subscription tax instead (minimum €100, maximum €125,000) and is restricted to managing financial assets for private investors. It cannot benefit from tax treaties or the EU Parent-Subsidiary Directive.
• Net wealth tax. Companies only (abolished for individuals from 2006): 0.5% on net wealth up to €500 million, and €2.5 million plus 0.05% on the excess above €500 million; qualifying participations are exempt and a minimum net wealth tax applies.
• VAT. 17% standard rate, the lowest in the EU; intermediate 14% and reduced rates of 8% and 3%.
• Individual income tax. Progressive to 42%, plus the employment-fund surcharge (9% at the top), for a top marginal rate of 45.78%.
• Inheritance tax. Applies to estates of Luxembourg residents. Transfers in the direct line within the statutory share, and between spouses or partners with common children, are generally exempt; other rates vary by relationship. Non-residents’ estates are taxed only on Luxembourg real estate (transfer duty).

Registration or residency mechanics

SOPARFI: Luxembourg société anonyme or société à responsabilité limitée under standard corporate law, with substance in Luxembourg. SPF: established under the law of 11 May 2007; investment activity restricted to financial assets. Luxembourg High Security Hub (the Luxembourg Freeport until its 2021 rebranding): a privately owned high-security storage facility next to Findel airport, operating under Luxembourg customs supervision. Founder Yves Bouvier sold his shareholding in 2024 to his former partner Olivier Thomas, who became sole shareholder.

Reporting and disclosure

CRS and DAC6 (EU mandatory disclosure rules) participant. Beneficial-ownership register (RBE): general public access was suspended after the CJEU’s November 2022 judgment in WM and Sovim (C-37/20 and C-601/20). Access is now limited to authorities, obliged entities and persons with a legitimate interest. FATCA Model 1 IGA in force.

The substance question

Luxembourg has implemented EU anti-tax-avoidance rules (ATAD I and II), the principal purpose test in tax treaties, and substance requirements for holding companies. Substance — directors, premises, management decisions — is required to claim treaty and EU directive benefits.

Recent changes

Pillar Two minimum tax for large groups (from 31 December 2023). CIT rate cut to 16% from 2025. The proposed ATAD III (“Unshell”) Directive was abandoned when ECOFIN dropped it in June 2025 and the Commission later withdrew it; substance concerns are expected to be addressed through DAC reform instead. RBE access was restricted after the 2022 CJEU ruling. Figures as of October 2026.

Common asset classes parked here

• Fine art — Luxembourg High Security Hub (formerly Luxembourg Freeport).
• Investment portfolios held through SPF.
• Family-office holding-company structures using SOPARFI.
• Cross-border fund investments using Luxembourg fund vehicles (SICAV, FCP, RAIF, SCSp).

Reviewed October 2026