Draft law 6501 has been voted by the Luxembourg Parliament. This Law of 14 June 2013implements new tax treaties with:

  • Germany,
  • Kazakhstan,
  • Macedonia,
  • Seychelles,
  • Tajikistan,
  • Laos, and
  • Sri Lanka,

and protocols to existing tax treaties with:

  • Canada,
  • South Korea,
  • Italy,
  • Malta,
  • Poland,
  • Romania,
  • Russia, and
  • Switzerland

These new instruments contain provisions for the exchange of information that are line with Article 26 of the OECD Model Convention.

New tax treaty between Germany and Luxembourg

Under the new treaty, the reduced withholding tax for dividends is lowered to 5% (10% under the current treaty) when the parent company holds 10% of the share capital of the paying subsidiary. The standard rate of 15% for portfolio and partnership dividends remains unchanged. For interests, the treaty provides for a 0% withholding rate whereas royalties are subject to a reduced withholding tax of 5%.

The new treaty attributes the taxing rights to the source State for capital gains on disposal of shares of Real Estate companies deriving more than 50 % of their value directly or indirectly from immovable property situated therein.

Investment funds such as SICAV, SICAF or SICAR are expressly entitled to treaty benefits, namely they can take advantage from the reduced withholding tax rate for interest and dividends. Contractual investment funds such as FCP are also entitled to treaty benefits provided that they are held by persons resident in the country where the FCP is established.

The Luxembourg tax authorities have issued a newsletter on this tax treaty following the publication of the approving law2.

Protocol to the tax treaty between Luxembourg and Russia

The protocol provides for beneficial withholding tax rates which should place Luxembourg on the short list for Russian investors or investments located in Russia, i.e.:

Dividends

  • Max. 5% (10% under the current treaty) withholding tax when the parent company, holds 10% of the share capital of the paying subsidiary with an investment of at least € 80,000 or the equivalent in ruble
  • Standard withholding tax of 15% in other cases.

NB: in Luxembourg, a domestic full withholding tax exemption on dividends distributed to a Russian company should generally apply under domestic law subject to participation threshold and holding period requirements

Interests

  • 0% withholding tax

Royalties

  • 0% withholding tax

The treaty attributes the taxing rights to the source State for capital gains on disposal of shares of Real Estate companies deriving more than 50 % of their value directly or indirectly from immovable property situated therein.

The provisions of the new tax treaty between Germany and Luxembourg and of the protocol to the tax treaty between Luxembourg and Russia should in principle be applicable as from 1 January 2014.