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Key Terms

  • Corporate Income Tax (CIT) / Impôt sur le Revenu des Collectivités (IRC): Tax on corporate taxable profits in Luxembourg (17%)
  • Municipal Business Tax (ICC) / Impôt Commercial Communal: Local tax on business profits, varies by municipality (6.0% - 7.5%)
  • Employment Fund Contribution: 7% of corporate income tax (1.19% effective rate)
  • Combined Tax Rate: Total effective tax rate including CIT, municipal tax, and employment fund (approximately 24.94% - 25.69%)
  • Taxable Profit: Profit subject to tax (accounting profit ± tax adjustments)
  • Tax Adjustments: Differences between accounting profit and taxable profit
  • Tax Deductions: Expenses that reduce taxable profit
  • Investment Allowance: Tax allowance of up to 8% on qualifying investments
  • Accelerated Depreciation: Depreciation method allowing higher depreciation in early years
  • R&D Tax Credit: Tax credit of up to 20% on R&D expenses
  • IP Box Regime: Reduced tax rate (5%) on qualifying intellectual property income
  • Tax Loss Carry-Forward: Ability to use tax losses to reduce future taxable profit (unlimited with conditions)
  • Deferred Tax Asset: Future tax benefit from temporary differences (tax deductions exceed accounting expenses)
  • Deferred Tax Liability: Future tax obligation from temporary differences (accounting expenses exceed tax deductions)
  • Temporary Differences: Differences between accounting and tax treatment that reverse over time
  • Transfer Pricing: Pricing of transactions between related parties
  • Arm's Length Principle: Requirement that related-party transactions be priced as if between independent parties
  • Transfer Pricing Documentation: Documentation required for related-party transactions (master file, local file)
  • Tax Filing Deadline: 7 months after fiscal year-end (can be extended up to 3 months)
  • eCDF: Electronic platform for filing tax returns in Luxembourg

End of Chapter 28 Key Terms