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28.3 Municipal Business Tax (Impôt Commercial)

Understanding Municipal Business Tax​

Municipal Business Tax (ICC)—Impôt Commercial Communal—is a local tax levied by municipalities on business profits. It's the second major component of Luxembourg's corporate tax system, alongside corporate income tax.

Tax Rate Structure​

Base Rate and Multiplier​

Municipal business tax uses a base rate multiplied by a municipal coefficient:

Base Rate: 3% (set by national law)

Municipal Coefficient: Varies by municipality (typically 200% - 250%)

Effective Rate Calculation:

  • Effective Rate = Base Rate × Municipal Coefficient
  • Example (Luxembourg City): 3% × 225% = 6.75%
  • Example (Other municipality): 3% × 250% = 7.5%

Municipal Rate Variations​

Luxembourg City​

Rate: 6.75% (3% × 225%)

Applies to: Businesses located in Luxembourg City

Other Municipalities​

Rates: Typically 6.0% - 7.5%

Variation: Each municipality sets its own coefficient

Important: Check your specific municipality's rate

Tax Base​

Same as Corporate Income Tax​

Municipal business tax is calculated on the same taxable profit as corporate income tax:

Tax Base = Taxable Profit (same as for CIT)

Calculation:

  • Taxable profit: €100,000
  • Municipal business tax (6.75%): €6,750

Combined Tax Impact​

Total Corporate Tax Burden​

Components:

  1. Corporate Income Tax: 17%
  2. Municipal Business Tax: 6.75% (varies)
  3. Employment Fund: 1.19% (7% of CIT)

Combined Effective Rate:

  • Luxembourg City: Approximately 24.94%
  • Other municipalities: Varies (typically 24.69% - 25.69%)

Municipal Tax Calculation​

Step 1: Determine Taxable Profit​

  • Same taxable profit as for corporate income tax
  • After all deductions and adjustments

Step 2: Apply Municipal Rate​

  • Multiply taxable profit by municipal rate
  • Rate depends on municipality location

Step 3: Calculate Municipal Tax​

  • Municipal Tax = Taxable Profit × Municipal Rate

Example:

  • Taxable profit: €200,000
  • Municipal rate (Luxembourg City): 6.75%
  • Municipal business tax: €13,500

Payment and Filing​

Combined Filing​

  • Municipal business tax filed together with corporate income tax
  • Single tax return covers both taxes
  • Same filing deadline applies

Payment​

  • Paid together with corporate income tax
  • Single payment covers both taxes
  • Same payment deadline applies

Municipal Tax Planning​

Location Considerations​

Municipality Selection:

  • Different municipalities have different rates
  • Lower rates can reduce tax burden
  • Consider other factors (rent, accessibility, etc.)

Rate Comparison:

  • Luxembourg City: 6.75%
  • Other municipalities: 6.0% - 7.5%
  • Difference can be significant for large profits

Luxembourg Compliance Note​

Important Requirements:

  • Correct municipality: Use correct rate for your location
  • Combined filing: File together with corporate income tax
  • Accurate calculation: Ensure accurate taxable profit calculation
  • Timely payment: Pay by deadline to avoid penalties
  • Rate verification: Verify current municipal rate annually

Common Issues:

  • Wrong municipality rate: Using incorrect rate for location
  • Calculation errors: Errors in taxable profit calculation
  • Timing issues: Incorrect recognition of income/expenses
  • Missing adjustments: Not applying all tax adjustments

Think It Through​

TechLux Solutions is considering relocating from Luxembourg City (6.75% municipal tax) to a municipality with 6.0% rate. Their taxable profit is €500,000. What would be the tax savings? What other factors should they consider?

Concepts in Practice​

Municipal Tax Impact

TechLux Solutions municipal tax calculation:

Location: Luxembourg City Taxable Profit: €500,000

Municipal Business Tax:

  • Rate: 6.75%
  • Tax: €33,750

If relocated to 6.0% municipality:

  • Tax: €30,000
  • Savings: €3,750 per year

Considerations:

  • Rent differences
  • Accessibility for employees
  • Business network and opportunities
  • Other municipal services