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11.7 Luxembourg Depreciation Rules and Tax Implications

Luxembourg Tax Depreciation​

Tax Depreciation:

  • Different from book depreciation
  • Must follow tax rules
  • Affects taxable income
  • Different rates for different assets

Common Tax Depreciation Rates​

Buildings:

  • New buildings: 2-4% per year
  • Used buildings: Varies
  • Straight-line method

Equipment:

  • General equipment: 10-20% per year
  • Declining balance or straight-line
  • Accelerated methods allowed

Vehicles:

  • Cars: 20-25% per year
  • Trucks: 15-20% per year
  • Declining balance common

Computer Equipment:

  • 33% per year (accelerated)
  • Often fully depreciated in 3 years

Book vs. Tax Depreciation​

Differences:

  • Book: Follow accounting standards
  • Tax: Follow tax rules
  • Can use different methods
  • Creates temporary differences

Example:

  • Equipment: €10,000
  • Book: Straight-line, 5 years = €2,000/year
  • Tax: Declining balance, 20% = €2,000 year 1, €1,600 year 2, etc.

Result: Temporary difference in taxable income

Luxembourg Compliance Note​

Depreciation in Luxembourg:

  • Must follow tax rules for tax purposes
  • Can use different method for books
  • Must maintain records for both
  • Must reconcile differences
  • Affects tax calculations
  • Must be properly documented

Think It Through​

Why might a business use different depreciation methods for book and tax purposes? What are the implications?