TITLE I. – PERSONAL INCOME TAX

CHAPTER I. – General provision

Art. 1er. (Art. 1er.)

• A personal income tax is levied annually for the benefit of the State.
• The taxation year is consistent with the calendar year.

Chapter II – Persons subject to tax

Art. 2. (Art. 2.)

(Law of 19 December 2008)

‘(1) Natural persons shall be regarded as resident taxpayers if they are resident for tax purposes or habitually resident in the Grand Duchy. Natural persons shall be regarded as non-resident taxpayers if they are not resident for tax purposes or habitually resident in the Grand Duchy and if they have domestic income within the meaning of Article 156.’

• Resident taxpayers are subject to income tax on both domestic and foreign income.
• Non-resident taxpayers shall be subject to income tax solely on the basis of their native income within the meaning of Article 156 below.

Chapter III – Joint taxation

Art. 3. (Art. 5.)

(Law of 6 December 1990) “The following shall be taxed collectively:

1. spouses who, at the beginning of the tax year, are resident taxpayers and do not in fact live separate and apart by virtue of an exemption from the law or judicial authority;
2. resident taxpayers who marry during the taxation year;
3. spouses who become resident taxpayers during the tax year and who are not in fact living separate and apart by virtue of an exemption from the law or judicial authority.’ (Law of 21 December 2001)

‘(d)on joint application, spouses who are not in fact living apart, one of whom is a resident taxpayer and the other a non-resident, provided that the resident spouse earns in Luxembourg at least 90 per cent of the household’s earned income during the tax year. The non-resident spouse must prove his or her annual income with documentary evidence.” (Law of 21 December 2007)

“Art. 3bis.

(1) The following shall be taxed jointly, on joint application and provided that the following persons have been divided into a common domicile or residence throughout the taxation year:

1. resident partners whose partnership existed from the beginning to the end of the tax year;
2. partners who become resident taxpayers in the taxation year where the partnership existed from the beginning to the end of the taxation year.

• The provisions of Articles 4 to 155a applicable in the case of joint taxation of spouses pursuant to Article 3 shall also apply under the same conditions in the case of joint taxation of partners, with the exception of those of Articles 48 (2) and (3) and 136 to 145.
• A Grand-Ducal regulation may make the regulatory provisions adopted pursuant to this law applicable to spouses who are jointly taxed apply to spouses who are jointly taxed. (4) The application referred to in paragraph 1 shall give rise to taxation by way of assessment.’

Art. 4. (Art. 6.)

(Law of 6 December 1990)

‘(1) (Law of 21 December 2007) ‘The taxpayer and his minor children for whom he obtains a reduction in child tax in accordance with the provisions of Article 122 and who form part of his household under the provisions of Article 123, shall be taxed jointly.’(Law of 21 December 2001) “The joint taxation of the taxpayer and his minor children shall take place only for resident taxpayers and for persons who apply for the joint taxation provided for in Article 3, letter d).” In addition, all these conditions must be fulfilled simultaneously at the beginning of the taxation year.’

(2) By way of derogation from paragraph 1, the income of the children referred to in this Article from an employment as an employee, even if it is carried out in the business or business of the ‘taxpayer’, shall not be subject to collective^[1] taxation. The conditions of Article 46 (3) must be fulfilled in the case of an employment carried out in the business or business of the “taxpayer”¹.

Art. 5. (Art. 7.)

A ‘Grand-Ducal Regulation^‘1 shall determine the community of taxation in which persons who belong to several tax communities within the meaning of Articles 3 and 4 above are to be taxed during the same tax year.

Chapter IV – Taxable income

Section I – General

Art. 6. (Art. 8.)

• The tax is levied on the taxable income earned by the taxpayer during the tax year.
• When the taxpayer is taxable for only part of the year, taxation is restricted to the taxable income for that period.
• Where a person has been a resident taxpayer for one part of the tax year and a non-resident taxpayer for another part of the tax year, the tax is levied separately on the taxable income earned by that person during each of those periods.

(Law of 21 December 2001)

‘(4) Where a non-resident person who is married to a resident person and who is not in fact living separate and does not in fact apply to be taxed jointly with his or her spouse pursuant to Article 3(d), he or she shall be taxed as if he or she had been a resident taxpayer for the entire taxation year or, if the spouse was not subject to tax throughout the year,  during the entire months of the resident spouse’s liability to the tax.”

Art. 7. (Art. 9.)

• Taxable income shall be obtained by deducting the special expenses referred to in Article 109 from the total net income.
• The total net income shall consist of all net income, determined separately for each of the categories listed in Article 10, the losses incurred for one or the other category being offset, if not otherwise provided, with the net income of the other categories.

Art. 8. (Art. 11.)

• Where a taxpayer is resident for tax purposes in the Grand Duchy solely because he owns one or more secondary residences there, his taxable income shall be fixed at a flat rate of a sum equal to a minimum of five and a maximum of ten times the gross rent or gross rental value of the secondary dwelling or dwellings, unless the taxpayer requests to be taxed on the basis of his income within the meaning of Article 7.
• The “Minister of Finance” ^[2] shall fix a single multiplier within the limits of the preceding paragraph, having regard to the relationship normally existing between taxable income and gross residential rent.
• Where the flat-rate income referred to in paragraph 1 is taken into account as taxable income, the provisions of Articles 126 to 134b^[3] shall not apply.
• Irrespective of the taxable income entered in the accounts in accordance with the foregoing provisions, the tax payable may be less than that which would be payable by the taxpayer solely on account of his native income within the meaning of Article 156, if the person concerned were considered to be a non-resident taxpayer.

Art. 9. (Art. 12.)

The “Minister of Finance”² may, on the proposal of the tax authorities and after deliberation by the Government in Council, determine the tax on persons who, coming from abroad, establish their tax residence in the Grand Duchy, for a maximum of the first ten years of this establishment.

Section II – Categories of net income and related common provisions

Art. 10. (Art. 13.)

The following are the only factors to be taken into account for the determination of the total net income within the meaning of the second paragraph of Article 7:

1. commercial profit,
2. agricultural and forestry profits,
3. the profit from the exercise of a liberal profession,
4. net income from salaried employment,
5. net income from pensions or annuities,
6. net income from movable capital,
7. net income from the rental of property,
8. the miscellaneous net income specified in Article 99 below.

Art. 11. (Art. 14.)

Net income, as specified in Articles 14 to 108bis4 of this Law, also includes in the respective categories:

1. compensation and benefits granted for loss or in lieu of receipts, provided that the receipts in question would have been included in net income liable to tax, if realised; (Law of 12 May 2010)

‘1a. the following benefits for self-employed persons paid by the National Health Fund, the Employers’ Mutual Insurance Fund or the Accident Insurance Association:

1. the pecuniary allowance referred to in Articles 12 and 101 of the Social Security Code;
2. the financial allowance provided for in Article 52, paragraph 2 of the Social Security Code derived from voluntary affiliation;
3. the maternity allowance referred to in Article 25 of the Social Security Code;
4. the allowance referred to in Article 100, paragraph 2, of the Social Security Code;’

2. the withdrawal granted for the abandonment or non-exercise of an activity, as well as for the abandonment of a participation in the profits or the prospect of such participation, provided that, in the event of realisation, the income from the activity or participation would have been part of a net income liable to tax;
3. income derived from one of the activities referred to in Article 10(1) to (3), or from one of the legal relationships referred to in Article 10(4) to (8), and realised after the cessation of that activity or legal relationship, even if it is received by the beneficiary’s successor-in-title.

Art. 12. (Art. 15.)

Without prejudice to the provisions relating to special expenses, the following expenses shall not be deductible either in the various categories of net income or from total net income:

1. expenses incurred in the interest of the taxpayer’s household and for the maintenance of the members of his family. These expenses also include lifestyle expenses occasioned by the taxpayer’s economic or social position, even when they are incurred with a view to benefiting or are likely to benefit his profession or activity;
2. Gifts, donations, subsidies. The same applies to allowances which, not being in the nature of operating expenses or costs of obtaining them, are paid to persons who, if they were in need, would be entitled, according to the provisions of the Civil Code, to claim maintenance from the taxpayer, even in the case where the allowances are subject to enforcement;

(Law of 29 December 1970)

‘3. (a) personal income tax, wealth tax, inheritance tax and foreign personal taxes, without prejudice, however, to the provision laid down in Article 13 below,

(b) value added tax due as a result of the deduction, within the meaning of this Law, of an asset from the net assets invested or its use for purposes other than the business, operation or exercise of the profession;’

4. criminal and administrative fines, confiscations, settlements and other penalties of any kind imposed on the taxpayer for non-compliance with legal or regulatory provisions, even when these penalties are economically related to one or more categories of net income; (Law of 1 August 2007)

‘5. benefits in kind granted and related expenses in order to obtain a pecuniary or other advantage from:

• persons who are custodians or agents of authority or law enforcement, or invested with a public elective mandate or entrusted with a public service mission either in Luxembourg or in another State;
• persons sitting in a judicial formation of another State, even as a lay member of a collegiate body responsible for deciding on the outcome of a dispute, or exercising the function of arbitrator subject to the arbitration regulations of another State or of a public international organization;
• Community officials and Members of the Commission of the European Communities, the European Parliament, the Court of Justice and the Court of Auditors of the European Communities, in full compliance with the relevant provisions of the Treaties establishing the European Communities, the Protocol on the Privileges and Immunities of the European Communities, the Statute of the Court of Justice, as well as the texts adopted for their implementation, with regard to the waiver of immunities;
• civil servants, officials of another public international organisation, persons who are members of a parliamentary assembly of a public international organisation and persons exercising judicial or registry functions in another international court whose jurisdiction is accepted by the Grand Duchy of Luxembourg, in full compliance with the relevant provisions of the statutes of these public international organisations, parliamentary assemblies of public international organizations or international courts and tribunals and the texts adopted for their implementation, with regard to the waiver of immunities;
• persons who have the status of director or manager of a legal person, agent or servant of a legal or natural person, in the cases provided for in Articles 310 and 310-1 of the Criminal Code.”

Art. 13. (Art. 16.)

(Law of 30 November 1978)

‘(1) As regards resident taxpayers, foreign personal taxes shall be deductible in the various categories of net income in so far as those foreign taxes are levied on net income taxable in the Grand Duchy and not referred to in Article 156.

(2) The foregoing provision also applies to foreign personal taxes which may in principle be set off against Luxembourg income tax under a double taxation agreement or under Article 134bis, but only to the extent that these foreign taxes could not be set off against the Luxembourg tax corresponding to the foreign income. (Law of 23 December 1994) “It does not apply to foreign personal taxes relating to income to which Article 134 applies, nor to those deemed to have been paid under a convention for the avoidance of double taxation.” A ‘Grand-Ducal Regulation’^[4]  may lay down rules for dividing foreign income tax into a part which can be set off against Luxembourg income tax and a deductible part of income taxable in Luxembourg, so that the total of the imputable portion and the Luxembourg tax saving resulting from the deductible portion reaches as much as possible the amount of that foreign tax,  without, however, going beyond it.”

Sub-Section 1 – Commercial Profit

1. Extent of the trading profit

Art. 14. (Art. 17.)

The following are considered to be commercial profits:

1. net income from a commercial, industrial, mining or craft enterprise. Any independent activity for the purpose of profit, carried out on a permanent basis and constituting participation in general economic life, is deemed to be a commercial, industrial, mining or craft enterprise, where the said activity does not involve agricultural or forestry operations or the exercise of a liberal profession; (Law of 15 June 2004) “The venture capital investment company (SICAR) in the form of a limited partnership is not, however, to be considered as a commercial enterprise;”
2. the share of profits of the co-operators of a collective commercial enterprise, as well as the remuneration or allowances granted to these co-operators by reason of their activity in the service of the collective enterprise, the loans granted by them or the property made available by them to the collective enterprise. (Law of 21 December 2001) “This provision applies to general partnerships, limited partnerships, economic interest groupings, European economic interest groupings and joint ventures in general, whose activities fall within those referred to in paragraphs 1 or 4 of this article;”
3. the share of the profits of the general partner of a partnership limited by shares, in so far as that share of the profits does not constitute the product of his shareholding in the partnership, as well as the remuneration or compensation granted to the general partner by reason of his activity in the service of the company, loans granted by him or the assets made available by him to the company; (Law of 21 December 2001)

‘4. notwithstanding the provisions of Article 175(1), and in the absence of an activity falling within those referred to in paragraph 1 above, the net income from a profit-making activity carried on either by a limited partnership, at least one general partner of which is a capital company, or by a general partnership,  an economic interest grouping, a European economic interest grouping or a civil company, the majority of whose shares are held by one or more capital companies. A commercial partnership under ¶ 1 or the first sentence of this provision that holds shares in another partnership shall be treated as a capital partnership for the purpose of determining the nature of the income earned by that other partnership.’

Art. 15. (Art. 18.)

(1) Commercial profit also includes the profit made in connection with:

1. the transfer en bloc and for consideration of one of the undertakings referred to in Article 14(1) or of an autonomous part thereof;
2. the cessation without successive liquidation of such an undertaking or of an autonomous part thereof;
3. the transfer for consideration of a portion of such an undertaking;
4. the transfer for consideration of its shareholding or a portion thereof by the co-operator or member of one of the undertakings referred to in “Article 14, numbers 2 and 4”⁶;
5. the transfer for consideration of his net assets with the company or of a portion of those assets by the general partner of a partnership limited by shares, but only in so far as it is not his shareholding in the company.

(2) Any transaction which, within the limits of Article 14, entails the wholesale realisation of all the undiscovered reserves of a commercial, industrial, mining or craft undertaking, of an autonomous part or of a part of such an undertaking, shall be treated as a block transfer for consideration. 2. Operating year

Art. 16. (Art. 19.)

• The profit made during the operating year is taxed in respect of the tax year in which the operating year ends.
• However, when the operator ceases to be a resident taxpayer and becomes a non-resident taxpayer or, vice versa, the profit of the elapsed part of the current operating year is deemed to have been made on the day of the event in question.

Art. 17. (Art. 20.)

• Subject to the exceptions provided for in this section, the fiscal year of operation ends with the calendar year; In the event of a transfer or definitive cessation of the business, it ends at the time when the transfer or cessation is completed.
• Farmers who meet the conditions to be determined by ‘Grand-Ducal Regulation’ may close regularly on the same annual date other than 31 December^[5].
• In the event of a change in the regular balance sheet date, no operating year may contain more than twelve consecutive months.

3. Method of determining profit

Art. 18. (Art. 23.)

• The profit is made up of the difference between the net assets invested at the end and the net assets invested at the beginning of the financial year, plus personal deductions made during the financial year and minus any additional contributions made during the financial year.
• Unless this is the first year of operation, the net assets invested at the beginning of the year must be equal to and identical to the net assets invested at the end of the previous year.
• A ‘Grand-Ducal Regulation’⁷ may, under the conditions and in accordance with the procedures laid down in it, establish a simplified method of determining profit by comparing operating income and expenditure. The same regulation shall prescribe, in the case of the transfer or cessation of an undertaking or the transition from one method of determining profit to another, the necessary adjustments to ensure that the overall profit of the undertaking, from creation to cessation, corresponds to the formula provided for in paragraph 1 above.

4. Net Invested Assets

Art. 19. (Art. 24.)

• Net invested assets include assets which, by their nature, are intended to be used for the business.

(Law of 19 December 2008)

‘(1a) A Grand-Ducal regulation may lay down the conditions for membership of the net invested assets of either the lessor or the lessee-investor of property leased.’

• However, it is permissible for operators with regular accounts to include in the net assets invested assets assets which, although not generally intended to be used for the business, are nevertheless, in the sector of business envisaged, likely to be used for this purpose. In order for an asset of the species in question to be part of the net assets invested, the choice of the operator must have been clearly manifested. The choice, once made, cannot be arbitrarily modified in the future.
• Assets which, because of their use, cannot be used for the business.

Art. 20. (Art. 25.)

A “Grand-Ducal Regulation”⁷ will establish the extent to which buildings partially used for business, the operator’s personal residence or for rental purposes are or may be part of the net assets invested. With regard to smaller parts of buildings and those not referred to in Article 19, paragraph 1, the above-mentioned regulation may derogate from the provisions of Article 19.

Art. 21. (Art. 26.)

• Net assets invested include capital assets, realizable and available assets, and liabilities to third parties.
• Capital assets are considered to be assets that are intended to be used permanently by the company.

5. Principles of evaluation

Art. 22. (Art. 27.)

• The operator must follow constant evaluation procedures, unless there are economic reasons to change them.
• The situation at the closing date of the operating year is decisive for the valuation at the end of the financial year; The operator may take into account the facts and circumstances which existed on that date and the existence of which only became apparent later, but before the date on which the balance sheet was drawn up.
• The valuation must be carried out separately for each asset which, at the end of the operating year, is part of the net invested assets; However, in the case of property similar in species and value or property of lesser importance, the valuation may be carried out en bloc.
• Depreciation, when it is compulsorily time-barred and the operator has knowingly omitted to make it, cannot be recovered subsequently.

(Law of 21 December 2001)

‘(5) The exchange of property is to be regarded as the transfer for consideration of the property given in exchange, followed by the acquisition for consideration of the property received in exchange. The sale price of the property given in exchange corresponds to its estimated realisation value.” (Law of 21 December 2001)

“Art. 22bis.

(1) For the purposes of this Act, the following definitions apply:

(Law of 21 December 2007)

‘– company of a Member State: any company referred to in Article 3 of the amended Directive of the Council of the EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States, and to the transfer of the registered office of a European company or a European cooperative society from one Member State to another,  and any capital company or cooperative society which is a resident of a State party to the Agreement on the European Economic Area (EEA) other than a Member State of the European Union, fully liable to a tax corresponding to corporate income tax;’

• acquired company: the company in which another company acquires a shareholding, through an exchange of securities;
• acquiring company: the company that acquires a shareholding, through an exchange of securities.

(2) By way of derogation from Article 22(5), the exchange transactions referred to in paragraphs 1 to 4 below shall not lead to the realisation of the capital gains inherent in the assets exchanged, unless, in the cases referred to in paragraphs 1, 3 and 4, either the creditor or the shareholder waives the application of this provision:

1. on the conversion of a loan: “the allocation to the creditor of securities representing the debtor’s share capital”.^[6] In the case of a conversion of a convertible capitalizing loan, the capitalized interest relating to the period of the current business year preceding the conversion is taxable at the time of the exchange; (Law of 21 December 2007)

‘2. on the conversion of a collective body into another collective body: the allocation to the shareholder of securities representing the share capital of the converted body;’

3. in the case of a merger or division of capital companies or companies resident in a Member State ‘(…)’⁹: the allocation to the shareholder of ‘securities representing the share capital’⁸ of the company or companies benefiting from the transfer in exchange for the ‘securities representing the share capital’⁸ held in the transferring company;
4. upon acquisition
   1. by a company resident in a Member State ‘(…)’⁹ or
   2. by a capital company fully taxable to a tax corresponding to corporate income tax,

in the share capital of another company referred to in subparagraph (a) or (b) of a shareholding which has the effect of either conferring on it or increasing the majority of the voting rights in the acquired company: the allocation to the shareholder of “securities representing the share capital”⁸ of the acquiring company in exchange for the “securities representing the share capital”⁸ held in the acquired company.

• Paragraph 2, numbers 1, 3 and 4 shall continue to apply where the creditor or the member obtains, apart from the securities, a cash payment not exceeding 10% of the nominal value or, in the absence of a nominal value, of the accounting par value of the securities received in exchange.
• In the case of the shareholder, the price and date of acquisition of the securities received in exchange correspond to the price and date of acquisition of the securities given in exchange. In the event of payment of a balance to the shareholder, the purchase price of the securities received in exchange shall be reduced by the amount of the balance.’

(Law of 22 March 2004)

‘(5)Transferable securities issued by a securitisation undertaking shall be excluded from the benefit of the provisions of subparagraph

2 of this Article.’

6. Assessment Rules

Art. 23. (Art. 28.)

• Without prejudice to the provisions relating to valuation at the end of the business or to those laid down in Article 49, the valuation of the assets of the net invested assets must comply with the rules laid down in the following paragraphs and, as regards farmers obliged to keep regular accounts, with the principles of such accounts.
• Depreciable fixed assets are to be valued at the purchase or cost price less depreciation calculated in accordance with Articles 29 to 34. Where the going concern value is lower, the valuation may be made at that lower value. For assets that have already been part of the net assets invested at the end of the previous financial year, the valuation may not exceed the value retained at the end of that financial year.
• Property other than that referred to in the preceding paragraph (land, shareholdings, “(…)”^[7] , the realizable and disposable goods) are to be valued at the purchase or cost price. Where the going concern value is lower, the valuation may be made at that lower value. Where the going concern value of assets which have been part of the net assets invested at the end of the preceding financial year is higher than the value retained at the end of that financial year, the valuation may be carried out at the going concern value, provided that the purchase or cost price may not be exceeded.
• Debts are to be assessed by appropriate application of the provisions of the preceding paragraph.
• Where the going concern value of shareholdings which formed part of the net assets invested at the end of the preceding financial year is higher than the value retained at the end of that financial year, the valuation must be carried out at going concern value, but the purchase price may not be exceeded; Holdings acquired prior to the publication of this Act shall not, however, be valued above their carrying value at the time of such publication until the subsidiary is dissolved.

Art. 24. (Art. 28bis.)

(Law of 8 June 1999)

‘(1) A farmer who has undertaken to pay a retirement, invalidity or survivor’s pension may make provision for the benefits to which he is thereby entitled only in accordance with the following requirements.

• The operator’s obligation must be duly established in accordance with the provisions of the Law of 8 June 1999 on supplementary pension schemes.
• The annual allocation for the constitution of the provision must be calculated in accordance with the financing plan referred to in Article 18 of the Law of 8 June 1999 on supplementary pension schemes and within the limit authorised for the tax deduction for supplementary pensions, in accordance with Article 31 of the above-mentioned Law.
• A special allocation for the constitution of the provision is accepted when it is used to remedy a shortfall in provisions established pursuant to Article 19 of the Law of 8 June 1999 on supplementary pension schemes and within the limit authorised for the tax deduction for supplementary pensions, in accordance with Article 31 of the above-mentioned Law.
• A special allocation for the constitution of the provision is accepted pursuant to Articles 51 and 52 of the Law of 8 June 1999 on supplementary pension schemes when it is used to amortize the deficit of obligations resulting from past periods.
• After the commencement of the payment of the pension, the permitted provision must be reduced, at the end of each financial year, by a proportion equal to at least the reduction in the present value of the pension in relation to its current value at the end of the preceding financial year. In the event that the obligation to pay retirement, disability or survivor’s benefits is extinguished, the remaining allowable provision is to be applied to the result of the current financial year.
• In the event of the member’s departure before the date of retirement, the acquired rights must be carried over until the date scheduled for the commencement of the pension.

In the event of redemption by the member of the acquired rights, the provision is to be included in the result of the current financial year.

When, in the event of a change of employer, the obligation to enforce acquired rights falls on the new employer, the initial provision to be made by the latter must correspond to the current value of these rights. The provision made with the former employer is to be included in the result of the current financial year.

• Annual allocations to the provision relating to the operator, the co-operator of a collective commercial enterprise, the partners of a civil partnership and the persons referred to in Article 91(1)(2) shall not be deductible, with the exception of annual allocations made in the interest of the persons referred to in Article 95(6), insofar as these allocations are related to a supplementary pension scheme established in accordance with Article 1 of the Law of 8 June 1999 on supplementary pension schemes and extending to all members of the salaried staff under identical conditions of contribution or benefit.’

7. Miscellaneous Definitions

Art. 25. (Art. 29.)

• The purchase price of an asset is the total of the expenses assumed by the operator to bring it into its condition at the time of the valuation. (Law of 21 December 2001) “In the event of an exchange of goods, the purchase price of the goods received in exchange corresponds to the estimated realisation value of the goods given in exchange, reduced or increased by a balance when the goods exchanged do not have the same value.”
• In the case of isolated assets transferred free of charge to the operator, their initial purchase price is represented by their going concern value at the time of transfer.

(Law of 22 March 2004)

‘(3) The purchase price of an asset acquired by a securitisation undertaking should correspond to the estimated realisation value of that asset.’

Art. 26. (Art. 30.)

• The cost price of an asset includes all the expenses incurred by the operator as a result of the manufacture of the asset envisaged.
• The cost price must include the purchase or cost price of the materials or supplies used in manufacturing, manufacturing wages, special manufacturing costs, as well as the related share of the general manufacturing costs, including the depreciation of goods contributing to manufacturing.

(Law of 17 December 1977)

‘(3) Selling costs and expenses which do not constitute operating expenses may not be included in the cost price.’

Art. 27. (Art. 32.)

• The going concern value of an asset is the price that a purchaser of the entire business would assign to the asset envisaged as part of the overall purchase price, the purchaser being assumed to continue the operation.
• The estimated realizable value is the price that would be obtained in the event of a normal and freely consented disposal of the property envisaged, taking into account all the circumstances and conditions affecting the price, with the exception, however, of abnormal or personal circumstances and conditions.

Art. 28. (Art. 33.)

• Depreciable fixed assets include fixed assets subject to depreciation for usury and fixed assets subject to depreciation for diminution of substance.
• Fixed assets liable to depreciation for usury are those which depreciate over time or their use, with the exception of fixed assets of a supply nature.
• Fixed assets liable to depreciation for loss of substance are those consisting of masses of mineral or fossil substances contained in the heart of the earth or existing on the surface. 8. Depreciation

Art. 29. (Art. 34.)

• The depreciation for wear and tear and the depreciation for loss of substance referred to in Article 28 concern both technical and economic loss.
• Without prejudice to the provisions laid down in Articles 53 to 55, the total depreciation and deductions for depreciation may not exceed, in the case of a given depreciable fixed asset, its purchase or cost price, less, where appropriate, its estimated salvage value.

Art. 30. (Art. 35.)

Normal depreciation, as specified in Articles 32 and 33, must be deducted from the result.

Art. 31. (Art. 35bis.)

Extraordinary depreciation is permitted in the event of an extraordinary technical or economic loss.

Art. 32. (Art. 36.)

(Law of 22 December 1993)

‘(1) Normal depreciation for wear and tear shall be calculated, for a given operating year, on the basis of the remaining net value of the purchase or cost price, less, where appropriate, the estimated salvage value, and taking an amount equal to each unit of the usual useful life remaining from the beginning of the operating year.

• The usual period of use is determined by taking into account the type and conditions of use of the asset in question. It must be established in a number of years; however, with the agreement of the tax administration and under the conditions to be determined in each case, it may be fixed in any other appropriate unit.
• Where the owner of a tangible asset other than a building is also the user of the fixed asset, normal depreciation for wear and tear may be made in decreasing annuities.

Depreciation by decreasing annuities can be calculated by applying a fixed rate to the book value (remaining value); The rate may not, however, exceed three times the rate that would be applicable in the event of depreciation by constant annuities and may not exceed thirty per cent. In the case of equipment and tools used exclusively for scientific or technical research operations, the rate of depreciation by decreasing annual instalments may not exceed four times the rate that would be applicable in the case of depreciation by constant annuities and may not exceed forty per cent. A Grand-Ducal regulation may allow the application of other methods of depreciation by decreasing annual instalments, provided that the depreciation calculated by these procedures does not significantly exceed, either for the first year or for the whole of the first three years, the depreciation by applying a fixed rate at the book value.

• Depreciation by decreasing annual instalments is permitted only if it is the subject of entries to be specified by Grand-Ducal regulation.
• It is permissible to switch from depreciation by decreasing annuities to the method of depreciation provided for in paragraph 1. This transition is mandatory in the event of extraordinary depreciation within the meaning of Article 31. The transition from depreciation according to the method provided for in the first paragraph to depreciation by decreasing annuities is not permitted.
• In the event of the transfer of a fixed asset partially or entirely depreciated by an operator and the resumption of rental by the same operator of the same fixed asset, the lessor may not claim, in respect of a given operating year, a depreciation greater than the amount of the rents paid by the user of the fixed asset for the financial year in question.’

Art. 32bis.

(Law of 24 December 1996)

‘(1) The special depreciation determined in paragraph 6 may be applied to the fixed assets referred to in paragraphs 2 and 3 below, where they are acquired or constituted for the purpose of setting up in a commercial, industrial, mining or craft undertaking within the meaning of Article 14 or in a permanent establishment of such an undertaking situated in the Grand Duchy.

(2) Special depreciation is permitted at the location of

1. specific capital assets to reduce water consumption and to prevent, reduce or eliminate waste discharges to water, air or land and harmful emissions of noise, odour, trepidation or radiation;
2. specific fixed assets intended to prevent, reduce, recycle or dispose of waste generated in production or in operation;
3. specific fixed assets intended to ensure the rational management of waste generated by industrial or craft activities.

Specific fixed assets are non-productive fixed assets acquired or built up by the company for the sole purpose of protecting the environment. However, fixed assets that are not exclusively specific are eligible for special depreciation, when the degree of specificity concerning them is at least 50 per cent.

(3) Special depreciation shall also apply to fixed assets acquired or accrued for the purposes of:

1. the implementation of new techniques for the rational use of energy or the implementation of new and renewable energy sources as well as energy recovery in industrial processes;
2. adaptation of workstations for physically disabled people.

• Only fixed assets referred to in paragraphs 2 and 3 which are liable to depreciation for wear and tear within the meaning of Article 29 and the purchase or cost price of which amounts to at least EUR 2,400 ^[8] excluding VAT shall be taken into account.
• The reality and conformity of the fixed assets eligible for special depreciation must be certified by the ministers responsible for the environment, energy or labour, upon application to be submitted to the Luxembourg Inland Revenue no later than 3 months after the end of the operating year during which the fixed assets were acquired or constituted.
• Upon request, attached to the tax return and supported by the certificate of approval referred to in paragraph 5, the special depreciation may be applied during the financial year in which the acquisition or constitution of the fixed assets is carried out, or during one of the following four financial years, or be allocated on a straight-line basis over several of the five financial years. However, the taxpayer’s choice within the meaning of the preceding sentence cannot have retroactive effect. The special depreciation may not exceed “80 per cent”^[9] of the purchase or cost price of the fixed assets.
• Special depreciation may be applied notwithstanding the normal depreciation for wear and tear provided for in Article 32, paragraph 1. This is calculated on the basis of the remaining net value after deduction of special depreciation and on the basis of the usual useful life.

The use of special depreciation shall exclude the application of the declining balance depreciation provided for in Article 32, paragraph 3.

• A Grand-Ducal regulation may extend the measure to specific categories of agricultural holdings.”(Law of 30 July 2002)

“Art. 32ter.

• Accelerated depreciation at the rate of 6 per cent is permitted in respect of buildings or parts of buildings used as rental housing, when the completion dates back to the beginning of the operating year less than 6 years.
• These provisions apply to investment expenditure incurred in the case of the renovation of an old dwelling, provided that it exceeds 20 per cent of the purchase or cost price of the building.
• Accelerated depreciation is not permitted, however, where the operator has opted for separate depreciation of the constituent parts of the building.’

Art. 33. (Art. 37.)

The annual portion of the normal depreciation for loss of substance is equal to the product of the remaining net value of the purchase or cost price at the beginning of the financial year, multiplied by the ratio between the quantity extracted during the year and the quantity not yet extracted at the beginning of the year.

Art. 34. (Art. 39.)

(Law of 23 December 1997)

‘Depreciable assets whose usual period of use does not exceed one year and depreciable assets of which the owner is also the user and whose purchase or cost price does not exceed EUR 870 ^[10]per asset may be depreciated in full at the expense of the financial year in which it is acquired or set up. This provision shall not apply to fixed assets acquired on the transfer of an undertaking or an independent part of an undertaking.’

9. Setting up a business

Art. 35. (Art. 40.)

(1) In the case of the establishment of an undertaking or an independent part of an undertaking, the assets constituting the net assets invested at the beginning of the first financial year of operation may not be valued:

1. above the purchase or cost price, in the case of assets acquired or manufactured by the operator with a view to creation;
2. above going concern value at the time of creation, in the case of assets not described in subparagraph (a);
3. below the net amount of the obligation incumbent on the operator, in the case of debts contracted by the operator with a view to the creation;
4. below going concern value, in the case of debts not referred to in subparagraph (c).

(Law of 27 July 1978)

‘(2) Property which, in the event of alienation at the time of the transfer, would give rise to the application of any of Articles 99b to 102 and which has not been acquired with a view to creation may not be valued above the purchase price, which may be revalued, which would be used for the purpose of determining income within the meaning of the article in question,  or above going concern value. Assets which would give rise to the application of Article 99a in the same case shall be valued at the purchase price or at the going concern value, if lower.’

• Values aligned in accordance with the requirements of paragraphs 1 and 2 shall be considered as initial purchase or cost prices. However, where the assets referred to in subparagraph b of the first subparagraph are withdrawn during the two years following the creation of the undertaking or of the autonomous part of the undertaking, their levy value may not be less than the value used at the time of creation, less the normal depreciation applied from the creation to the day of the withdrawal.
• When a person acquires the status of resident taxpayer and thereby becomes taxable in the head of an enterprise, an autonomous part of an enterprise or a permanent establishment, the provisions of this article shall apply subject to the proviso that all assets may be valued at their going concern value. 10. Transfer for consideration

Art. 36. (Art. 41.)

• In the event of a transfer for consideration of an undertaking or an independent part of an undertaking, the purchaser must, for the beginning of his first financial year of operation, value the assets transferred to him at their purchase price determined as part of the sum of their going concern values. When the overall purchase price exceeds the sum of the going concern values of the assets acquired other than the intangible assets of the business capital, the excess represents the purchase price of the intangible assets of the business capital.
• The transferor must, at the time of transferring them to his private assets, value the assets not transferred at the time of the transfer at the estimated realisation value.

11. Transmission free of charge

Art. 37. (Art. 42.)

• In the event of a free transfer of an undertaking or an autonomous part of an undertaking or a permanent establishment, the transferor or his successors in title must value the assets constituting the net assets invested at the time of the transfer as at the end of the financial year. For its part, the buyer must include in its opening balance sheet the values aligned with the seller’s closing balance sheet and continue the capital gains that are exempt in the hands of the seller.
• Where a transfer free of charge gives rise to the tax liability of an undertaking, an independent part of an undertaking or a permanent establishment, the provisions of Article 35(1) to (3) ^[11] shall apply, provided that all assets may be valued at their going concern value.

12. Transfer abroad

Art. 38. (Art. 42bis.)

The transfer abroad of an enterprise or permanent establishment belonging to a non-resident taxpayer shall be treated in the same way as the transfer en bloc and for consideration of the enterprise or permanent establishment. The estimated market value of the business or permanent establishment is to be used as the sale price. 13. Termination

Art. 39. (Art. 43.)

In the event of the definitive cessation of the business or of an independent part of the business, the valuation of the unsold assets of the net invested assets must, when transferred to the private assets of the operator, be carried out at the estimated realizable value.

14. Linking the tax balance sheet to the commercial balance sheet

Art. 40. (Art. 44.)

• Where the requirements governing valuation from the point of view of taxation do not require valuation at a specified amount, the values to be taken into account in the tax balance sheet must be those of the balance sheet or as close as possible to them within the framework of the prescribed requirements, depending on whether the values of the balance sheet meet or do not meet the same requirements.
• The usual period of use taken into account for the calculation of normal depreciation of the tax balance sheet must be consistent with that used for the calculation of normal depreciation of the commercial balance sheet, unless the latter period is determined in a manifestly incorrect manner or the requirement of Article 22, paragraph 1, precludes it.

15. Rectification and modification of the balance sheet produced

Art. 41. (Art. 45.)

• The taxpayer may rectify the balance sheet submitted to the tax authorities in so far as it does not comply with the requirements set out in this subsection.
• The taxpayer may amend the balance sheet submitted to the tax authorities when it meets the requirements set out in this subsection and the amendment is based on serious economic reasons.
• The taxpayer may not rectify or modify a balance sheet which has served as the basis for a taxation, except in the following cases:

1. the taxation in question is still subject to change;
2. Rectification or modification does not imply a change in a tax.

The rectification or modification in the case of sub 2 above must be approved by the tax authorities.

16. Contribution supplements and personal deductions

Art. 42. (Art. 46.)

• All assets that the taxpayer incorporates into his business during the course of operation are considered to be additional contributions.
• Personal deductions are considered to be all assets such as cash, goods, products, benefits, services, which the taxpayer withdraws from the business during the course of business, either for himself, for his personal household or for other purposes unrelated to the business.

Art. 43. (Art. 47.)

(1) Contribution supplements and personal deductions are to be taken into account respectively for their going concern value at the time of contribution and at the time of deduction. This value constitutes, as regards the additional contribution, the initial purchase price.

(Law of 27 July 1978)

‘(2) Property which, in the event of a disposal at the time of the transfer, would give rise to the application of any of Articles 99b to 102 may not be valued, at the time of the transfer, either above the purchase price, which may be revalued, which would be used for the determination of income within the meaning of the article in question, or above the going concern value. Assets which would give rise, in the same case, to the application of Article 99bis shall be valued at the purchase price or at the going concern value, if lower.

(3) In the event of a deduction of an asset other than those referred to in the preceding paragraph during the two years following its incorporation into the net assets invested as a contribution supplement, the levy value may not be less than the contribution value less the normal depreciation applied up to the date of the levy.’

Art. 44. (Art. 47bis.)

In the event of the transfer of an item of net assets invested in an ‘indigenous’ permanent establishment^[12]  of another indigenous undertaking of a commercial, industrial, mining or artisanal nature belonging to the same taxpayer, the levy and contribution may be made at the book value, notwithstanding the provisions of Articles 42 and 43 above. However, both companies must have regular commercial accounts. The transferred item is considered in the new business as if it had been invested in that business from the outset. 17. Operating expenses

Art. 45. (Art. 48.)

• Deductible operating expenses are considered to be expenses incurred exclusively by the company.
• Operating expenses that are economically related to exempt income are not deductible.

Art. 46. (Art. 49.)

Operating expenses include:

(Law of 8 June 1999)

‘1. (a) assistance other than supplementary pensions, paid directly to employed staff and members of their families;

(b) retirement, survivors’ and invalidity pensions paid directly to employees and members of their families, with the exception of the cases referred to in Article 48;’

2. allocations which, outside of social legislation, are allocated to a relief fund for salaried staff, under the conditions and within the limits to be laid down by ‘Grand-Ducal Regulation^[13]‘;
3. remuneration actually granted to close relatives other than the spouse who is taxable jointly with the farmer, on the twofold condition, however, that it is normal remuneration for necessary and actual services and that all legally obligatory deductions and contributions are paid;
4. employers’ contributions due, under social legislation, in respect of remuneration granted under the conditions specified in sub 3;
5. «(…)»^[14]
6. under the conditions and restrictions provided for in Article 13 of this Law, foreign personal taxes ‘(…)’ ¹⁷.

(Law of 4 May 1984)

‘7. The expenditure referred to in sub B, C, I 1 and 2b ‘in Article 34 of the Law of 19 December 2002 on the Trade and Companies Register and the accounting and annual accounts of undertakings’^[15], where the undertaking has not made use of the option to enter them on the assets side of the balance sheet.’ (Law of 23 December 1994)

‘8. under the conditions and within the limits to be laid down by ‘Grand-Ducal Regulation’¹⁶, the allocations allocated to a special fund for the payment of compensation due under labour legislation in the event of the cessation of the undertaking or holding as a result of old age, illness, disability or death of the holder.’(Law of 27 December 1997)

‘9. Provided that they do not lead to a loss, expenses related to the taxpayer’s travel between his home and the place of his activity, within the limits and under the conditions to be laid down by Grand-Ducal regulation.

The said Grand-Ducal Regulation may also provide for a minimum flat-rate deduction for travel expenses;¹⁹»

(Law of 8 June 1999)

’10. insurance contributions, allowances and premiums, payable by the employer, paid to a supplementary pension scheme referred to in the Law of 8 June 1999 on supplementary pension schemes within the limit authorised for the tax deduction for supplementary pensions, in accordance with Article 31 of the abovementioned Law.

When they are used to amortize the deficit of obligations resulting from past periods within the meaning of Article 51 of the Law of 8 June 1999 on supplementary pension schemes, they are deductible only in accordance with Article 52 of the same law;

11. the premiums paid to the body referred to in Article 21 of the Law of 8 June 1999 on supplementary pension schemes;
12. ‘insurance’ premiums^[16] paid to an insurer for the purpose of ‘covering’²⁰ the risks of death, survival or disability arising from a supplementary scheme, in accordance with Article 3(2) of the Law of 8 June 1999 on supplementary pension schemes;’

(Law of 21 December 2001)

“13. the tax referred to in Article 142(1), up to the amount of the tax relating to an expenditure deductible within the limit authorised in respect of the tax deduction for supplementary pensions, in accordance with Article 31 of the Law of 8 June 1999 on supplementary pension schemes, as well as the tax paid optionally by the employer on the provisions made to cover pension promises existing on 31 December 1999. The tax referred to in Articles 41 and 52 of the abovementioned law shall also be deductible.’ (Law of 22 March 2004)

’14. the liabilities assumed vis-à-vis investors and any other creditors by a securitisation company.’

Art. 47. (Art. 49bis.)

«(…)»^[17]

Art. 48. (Art. 50.)

The following do not constitute operating expenses:

1. interest attributed to net invested assets;
2. rents, rents or royalties which, by reason of property allocated to the business, are allocated to the operator or to close relatives who are taxable jointly with him;
3. remuneration allocated to the operator or the spouse taxable jointly with him;(Law of 17 December 2010)

‘3a. the part of the severance pay or redundancy pay awarded to employees in excess of EUR 300,000.

For the purposes of determining the non-deductible amount, the splitting of the allowance over several taxation years shall be treated as a single amount.’

4. the premiums for life insurance taken out for the benefit of the farmer or his successors or close relatives, without prejudice, however, to the provisions laid down in paragraph 4 of Article 46;
5. allocations to own insurer’s reserves;
6. allocations to forecasting funds for the equalization of operating expenses;
7. the expenses listed in section 12 of this Act;^[18](Law of 8 June 1999)

‘8. contributions, allowances and premiums paid to a supplementary pension scheme referred to in the Law of 8 June 1999 on supplementary pension schemes, where the benefits to which they relate benefit the operator, the co-operator of a collective commercial enterprise, the member of a civil-law partnership or a person referred to in Article 91,  Paragraph 1, number 2.

However, the contributions, allowances and insurance premiums paid in the interest of the persons referred to in Article

95, paragraph 6, remain deductible

1. insofar as these contributions, allowances and insurance premiums are calculated in accordance with the financing plan referred to in Article 18 of the Law of 8 June 1999 on supplementary pension schemes, and
2. provided that the supplementary pension scheme extends to all members of the salaried staff under identical contribution or benefit conditions;

9. retirement, disability and survivor’s pensions paid after 1 January 2000 outside the scope of the Act of 8 June 1999 on supplementary pension schemes.

However, deductibility is granted for the part of the capital or annuity that relates to the period prior to 1 January 2000.

10. retirement, invalidity and survivor’s pensions to the extent that the expenditure results from insufficient provisions in the company’s balance sheet. However, this provision shall apply only where the deficiency of provisions is due to the non-deductibility of part of the allocations made by the undertaking.’

Art. 49. (Art. 51.)

• Without prejudice to the provisions of paragraph 2, taxes constituting operating expenses shall be taken into consideration for the operating year to which they relate from an economic point of view.
• The additional taxes of such taxes and the revision of tax assessments previously established are to be taken into consideration for the current operating year at the time when the farmer must reasonably be aware that he has been charged with these supplements. However, the supplements are to be taken into consideration for the financial year to which they relate from an economic point of view, when the operator requests them or where there has been an intention of fraud on his part.
• A ‘Grand-Ducal Regulation’ ^[19] shall lay down the detailed rules for the application of this Article and may lay down rules for the approximate determination of the municipal business tax on the basis of operating profit, when that tax is entered in the accounts for the financial year to which it relates from an economic point of view.

Art. 50. (Art. 54.)

• A ‘Grand-Ducal regulation’²³ may, with regard to the operator’s travel and subsistence expenses incurred exclusively by the undertaking, set limits within which the operator will be exempted from having to provide detailed proof of actual expenditure and within which there will be no need to recover the cleaning costs saved.
• The same regulations may provide, in the event of exceeding the above-mentioned limits, for the elimination of the cleaning costs saved and a minimum number of travel days required for such elimination.

(Law of 21 December 2007)

“Art. 50bis.

• Income received as remuneration for the use or concession of the use of a copyright in computer software, a patent, a trademark, a “domain name”, ^[20] a design or a model is exempt up to 80% of its net positive amount. Net income is to be considered as gross income less expenditure in direct economic relation to that income, including annual depreciation and, where appropriate, a deduction for depreciation.
• When a taxpayer has himself created a patent and is used in the course of his activity, he is entitled to a deduction corresponding to 80% of the positive net income that he would have earned if he had conceded the use of this right to a third party. For the purposes of this subparagraph, notional remuneration less expenses directly related to that income, including annual depreciation and, where appropriate, a deduction for depreciation, shall be considered as net income.

The deduction is allowed from the filing date of the patent application. In the event of a refusal of the patent application, the deduction previously made must be added to the taxable profit of the financial year in which the refusal was notified to the taxpayer.

• The capital gain generated on the transfer of a copyright in computer software, a patent, a trademark, a “domain name,^“24 a design or a model is exempt up to 80%. “The amount exempted under the preceding sentence shall be reduced”²⁴ by the algebraic sum of 80% of the negative net income generated by the said right during the financial year of the transfer or previous financial years, provided that such negative net income has not been offset under the provisions of paragraph 4, Number 2.

The exemption provided for in the first sentence of this subparagraph shall also be refused in so far as the purchase price of the rights taken into account for the determination of the transfer income from the sale has been reduced by the transfer of a capital gain pursuant to Articles 53 and 54.

• The application of paragraphs 1 to 3 of this Article shall be subject to the following conditions:

1. the right must have been accrued or acquired after December 31, 2007;
2. Expenses, depreciation and deductions for depreciation in connection with the duty shall be entered on the assets side of the taxpayer’s balance sheet and included in the profit or loss for the first financial year for which the application of the provisions of the abovementioned subparagraphs is taken into account, provided that for a given financial year these expenses have exceeded the income in relation to the same right.

(5) The application of paragraphs 1 and 3 shall be subject to the additional condition that the right has not been acquired from a person who has the status of an associated company. A company shall be considered as an associated company within the meaning of this subparagraph:

1. if it has a direct interest of at least 10% in the capital of the company receiving the income, or
2. if at least 10% of its capital is directly held by the company receiving the income, or
3. if at least 10% of its capital is directly held by a third company and the latter has a direct holding of at least 10% in the capital of the company receiving the income.

(6) The taxpayer may use any valuation method generally used for the valuation of intellectual property. For the purposes of paragraph 3, the estimated realisation value of the right transferred must be established in accordance with Article 27, paragraph 2.

Enterprises with the characteristics of a micro, small or medium-sized enterprise may, however, establish the estimated realizable value of a right described in paragraph 3 at 110% of the algebraic sum of the expenses which have reduced the transferor’s tax base for the year of the transfer and for previous years. For the purposes of this subparagraph, micro, small or medium-sized enterprises shall be considered to be undertakings meeting the criteria laid down by Grand-Ducal regulation.’

18. Permanent establishment located abroad

Art. 51. (Art. 55.)

«(…)»^[21]

19. Debt forgiveness for the purpose of restructuring the company

Art. 52. (Art. 56.)

The increase in net invested assets constituted by the net gain resulting from a total or partial write-off of debts granted with a view to the restructuring of the company is to be eliminated from a profit result, but only up to this result.

20. Transfer of undiscovered reserves

Art. 53. (Art. 58.)

(1) Where, in the course of operation, an asset of the net invested assets disappears by force majeure or is alienated either by an act of the authority or in order to escape such an act, and the right to compensation relating exclusively to the value of the property that has disappeared or been disposed of exceeds the net book value of that asset at the time of its disappearance or alienation,  The operator may transfer the capital gain constituted by this surplus to replacement property acquired or acquired during the same operating year, provided that:

1. the replacement property corresponds approximately, both economically and technically, to the property that has disappeared or been disposed of;
2. The operator has regular commercial accounts throughout the operating year.

(2) If the operator fails to acquire or constitute the replacement asset during the operating year in which the disappearance or alienation took place, the capital gain referred to in the preceding paragraph may be immunised, provided that:

1. the operator intends to replace the property that has disappeared or been disposed of by an asset that meets the requirements specified in paragraph 1, No. 1;
2. the operator has regular commercial accounts from the beginning of the operating year in which the disappearance or disposal took place;
3. the capital gain is entered and kept intact in a special balance sheet item at the end of the operating year in which the disappearance or disposal took place.

(3) The immunization referred to in the preceding paragraph shall be terminated

1. when any of the conditions provided for cease to be met;
2. when the operator acquires or constitutes a replacement item meeting the requirements specified in paragraph 1, No. 1;
3. if there is no replacement at the end of the second operating year following that of the disappearance or disposal, this period may be extended by the tax authorities upon duly substantiated request from the operator;
4. on the transfer en bloc and for consideration or on the definitive cessation of the undertaking or the autonomous part of an undertaking in question.

• The capital gain that ceases to be immunized must be linked to the result of the current operating year. However, in the case referred to in No. 2 of the preceding paragraph, it may be transferred to the replacement property.
• The capital gain transferred to the replacement asset reduces the purchase price by the same amount.
• Where, in the course of operation, an asset of the net invested assets is damaged by an act of force majeure and the right to compensation relating exclusively to the damage exceeds the extraordinary depreciation or the deduction for depreciation subsequent to the damage, the foregoing provisions shall apply, the restoration being to be assimilated to the acquisition or constitution of a replacement asset.

Art. 54. (Art. 58a.)

(1) Where, in the course of operation, a fixed asset consisting of a building or a non-depreciable asset is “disposed of^[22] “, the capital gain generated may be transferred to the fixed assets acquired or constituted by the undertaking in return of the sale price. The fixed assets acquired or constituted must form part of the net invested assets of a permanent establishment located in the Grand Duchy. “(…)”^[23]. When the sale price is only partially reinvested, the capital gain can be transferred in the proportion of the reinvested portion. The operator must have regular accounts throughout the operating year in which the items are carried out.

(Law of 21 December 2001)

‘(1a) Early re-employment from a financial year prior to that in which the capital gain was realised shall not be permitted. However, when the acquisition or construction of a building prior to the disposal of the building it is intended to replace, proves to be essential for the continuation of the business, an early re-employment may exceptionally be carried out provided that:

1. the operator leaves the old building and moves into the new building as soon as it is completed, and
2. The sale of the old building is completed within the 24-month period starting on the date of completion of the new building.

• For the purposes of paragraph 1, alienated assets shall be considered as fixed assets only if they have become part of the net assets invested at least 5 years before the disposal.’
• A capital gain not yet transferred at the end of the operating year in which the alienation took place may be exempted provided that:

1. the operator intends to reinvest in fixed assets in his business an amount equal to the sale price of the item disposed of or the portion of that price that has not yet been reinvested;
2. the operator has regular commercial accounts from the beginning of the operating year in which the disposal took place;
3. the capital gain not yet transferred is entered and kept intact in a special balance sheet item at the end of the operating year during which the disposal took place.

(4) The immunization referred to in the preceding paragraph shall be terminated

1. when any of the conditions provided for cease to be met;
2. where the operator reinvests, in accordance with the procedures laid down in the first paragraph above, a sum equal to the sale price of the alienated item or of the portion of that price not yet reinvested; (Law of 27 December 1973)

‘3. In the absence of reinvestment, at the end of the second operating year following that of the disposal, that period may be extended by the tax authorities upon a reasoned request from the operator.’

4. on the sale en bloc and for consideration or on the definitive cessation of the undertaking.

(5) The capital gain that ceases to be immunized must be linked to the result of the current operating year. However, in the case referred to in paragraph 2 of the preceding paragraph, it may be transferred to fixed assets acquired for re-use.

(Law of 27 December 1973)

‘(6) The capital gain transferred on the fixed asset acquired or re-used shall reduce the acquisition or cost price of that fixed asset accordingly. Where the fixed asset acquired in reuse is a holding in ‘a collective body’^[24], the reduction in the purchase price must be recorded in the balance sheet by the entry of a liability item equal to the capital gain transferred; the capital gain thus transferred shall remain subject to tax notwithstanding the application of Article 166.’

(7) Where the capital gains attached to the assets referred to in the first subparagraph above are realised under the conditions specified in the first paragraph of Article 53, the operator shall benefit from the provisions of this Article if he waives the application of Article 53.

Art. 54bis.

(Law of 16 July 1987)

‘(1) The provisions laid down in paragraphs 2 to 7 below may apply:

1. Credit institutions and professional securities depositories, referred to in the Law of 27 November 1984 on the supervision of the financial sector.
2. Insurance and reinsurance companies subject to the supervision of the Commissariat aux assurances and approved by the Minister who are responsible for supervising private insurance.
3. Legally established companies which, without falling under the letters (a) and (b), are predominantly engaged in the trade in monetary and financial assets. Companies are deemed to meet the preponderance test if the net income from an activity other than the trading in monetary and financial assets does not exceed 10% of the net income. The above-mentioned companies may neither buy nor sell capital or consumer goods or provide services which are not related to their main purpose without losing the benefit of the provisions of this article.

• The undertakings referred to in paragraph 1 may transfer to assets invested in a currency of the contributed capital the capital gains realised on the conversion into national currency of certain assets invested in the currency or currencies of the contributed capital and which are deemed to represent the equity of the undertaking in accordance with the provisions to be determined by a ‘Grand-Ducal regulation’^[25]. Capital gains thus immunized reduce the purchase or cost price of the asset to which they have been transferred by the same amount.
• The reduction in the purchase or cost price of the asset referred to in paragraph 2 shall be recorded in the balance sheet by the entry of a liability item ‘capital gain on conversion’, equal to the capital gain transferred.
• The item ‘capital gain on conversion’ shall consist of the algebraic sum of exchange differences occurring from 1.1.1986 onwards which may be transferred to foreign currency assets pursuant to paragraph 2. Any excess of an exchange rate loss must be disclosed off-balance sheet; This will be taken into account when determining a capital gain realized later.
• Where the algebraic sum of the exchange rate differences caused by changes in the currency in which the capital is invested has given rise to a reduction in taxable profits resulting from balance sheets closed from the date of incorporation of the company until 31 December 1985, the provision for capital gain on conversion shall be reduced accordingly.
• By way of derogation from paragraph 4 above, the item ‘capital gain on conversion’ shall consist of the algebraic sum of exchange rate differences occurring from 1.1.1982 in respect of companies which have been eligible for the benefit of Article 54a as introduced by the Law of 23 July 1983.
• The amount of the capital gains on conversion accumulated on the liabilities side of the balance sheet may not in any case exceed the algebraic sum of the annual exchange differences resulting from the successive application to the assets referred to in paragraph 2 above of the rate corresponding to the variation in the exchange rate of the currency of the contributed capital recorded between the beginning and the end of the operating year.
• The capital gain on conversion shall be linked to the profit or loss of the current financial year in the event of the sale, cessation or liquidation of the undertaking, without prejudice to Articles 55b and 169a.’

21. Determination of the benefit of assignment or termination

Art. 55. (Art. 59.)

• The profit on sale or cessation referred to in Article 15 shall consist of the excess of the present value of the sale price, previously increased by the estimated realisation value of the assets invested which, at the time of the transfer or cessation, are transferred to the private assets of the operator, over the sum of the costs of the transfer or cessation and the value of the net assets invested at that time. The latter value is the one established for the determination of current operating profit in accordance with the requirements governing year-end valuation.
• The profit on sale or cessation is to be increased by capital gains which, at the time of the sale or cessation, are exempt on the basis of Article 53.
• Where the sale price is payable in whole or in part in the form of periodic services of a random nature, the value of these services shall not be taken into account in the sale price and there may be no loss of transfer or termination, except to the extent that there would be a loss if the present value of periodic services of a random nature are taken into account.
• The profit on disposal or cessation is to be set off up to its amount against a current operating loss which relates to the same business and the same tax year.
• Where the taxpayer has acquired the business, part or part of the business in the three years preceding the realisation and has therefore paid inheritance tax, the tax on the profit on sale is reduced on request. The tax reduction may not exceed the amount of the inheritance tax reduction that the taxpayer would have obtained if the tax relating to the profit on the sale had been taken into account as a liability of the estate. The tax relating to the profit on sale is equal to the tax reduction that would result from the omission of this profit.

(Law of 15 July 1980)

“Art. 55bis.

• Where the profit on sale or cessation referred to in Article 15 includes a capital gain realised on immovable property, the capital gain may, on request, be exempted within the limits specified in the following subparagraphs.
• The amount to be immunized is equal to the excess of the revalued carrying amount over the carrying amount.
• The revalued book value shall be determined by applying to the purchase or cost price, depreciation and deductions for depreciation the coefficients provided for in Article 102, paragraph 6, which correspond to the years in which the end of the operating years during which the acquisition or constitution of the building, depreciation and deductions for depreciation were made.
• When the building has been transferred from private assets to net invested assets, the value taken into account on the date of the contribution constitutes the initial purchase price of the building. In this case, the date of the contribution is considered as the date of acquisition of the property.
• Where the immovable property has been acquired in the course of a transfer free of charge or any other transfer which does not necessarily entail the realisation of the undiscovered reserves of an undertaking, of an independent part of an undertaking or of a fraction of such an undertaking, and none of the said reserves has been discovered, the provisions of paragraphs 2 to 4 shall apply to the immovable property as they would be applicable to the former operator if there had been no transfer.’ (Law of 23 July 1983)

“Art. 55ter.

(Law of 16 July 1987)

‘(1) Where the profit on the sale or cessation of an undertaking includes a capital gain on conversion within the meaning of Article 54a, that capital gain shall be immunised within the limits specified in the following subparagraphs.’

• The amount to be immunised is equal to the excess of the revalued carrying amount of the undertaking’s own funds used as the basis for calculating the conversion capital gain over its carrying value. However, this amount may not exceed the capital gain on conversion recorded on the liabilities side of the balance sheet.
• The revalued carrying amount of the own funds used as a basis for calculating the capital gain on conversion shall be determined by applying to the contributions and additional contributions the coefficients provided for in Article 102, paragraph 6, which correspond to the years in which the share capital or endowment is paid up. Similarly, the reserved profits are revalued by applying the above-mentioned coefficients which correspond to the year in which the profits were made. For this purpose, profit distributions and compensation for any losses will be considered to have been applied to the profits last realized.
• By way of derogation from paragraph 3 above, contributions and reserved profits made prior to 1982 shall be revalued using the coefficient corresponding to 1982.’
  22. Flat-rate determination of profit

Art. 56. (Art. 61.)

Irrespective of the result recorded, a senior official of the tax administration to be appointed by the director of that administration and who cannot have a rank lower than that of management inspector may fix the operating result at a flat rate, when a transfer of the result is made possible by the fact that the company has special economic relations, either direct,  or indirect, with a natural or legal person who is not a resident taxpayer.

23. Collective commercial enterprises

Art. 57. (Art. 62.)

With the exception of the provisions expressly relating to sole proprietors, the provisions of this subsection shall apply to the co-operators of a collective commercial enterprise, as if each co-operator were operating individually.

24. Contributions to society and transformations

Art. 58. (Art. 63.)

• In the case of a contribution of an undertaking or an independent part of an undertaking to a collective commercial enterprise in return for the allocation of a shareholding in the capital of the latter, the contributor must value the assets contributed as at the end of the financial year; For its part, the collective commercial enterprise must include in its opening balance sheet the values aligned with the contributor’s closing balance sheet.
• Provided that there are serious economic reasons justifying it, the collective commercial enterprise may, within the limits of the going concern values, value assets at a higher value and debts at a value lower than the values referred to in paragraph 1.
• Capital gains previously immunized by the transferred undertaking shall be considered as discovered in the hands of the latter provided that they are not continued by the collective undertaking.
• The contributor shall make a profit on the transfer within the meaning of Article 15 to the extent that his share of the net assets invested in the collective enterprise, taking into account any balance, exceeds the net invested assets of the transferred undertaking.
• The provisions of Article 130 relating to the allowance to be deducted from the profit on sale and those of Article 131 concerning the taxation of extraordinary income are applicable only if the profit on sale is derived from an assessment at the going concern value of the assets contributed.

Art. 59. (Art. 64.)

(Law of 21 December 2001)

‘(1) Where an undertaking or an autonomous part of an undertaking is transferred to a collective body ‘(…)’^[26], subject to the allocation of ‘securities representing the share capital’^[27]  of that undertaking, the provisions of Article 35(1) and (3), first sentence, shall apply in respect of the beneficiary undertaking. Capital gains previously immunized by the transferring undertaking may not be continued in the hands of the beneficiary body.’

(Law of 15 July 1980)

‘(2) The ‘transferor’^[28]  must, at the time of the transfer, value the assets transferred at their going concern value, including the intangible assets of the business capital, without being able to take into account, in the case of assets, lower values or, in the case of debts, values higher than those aligned by the ‘recipient body’³¹ of the contribution.

(Law of 21 December 2001)

‘(3) However, where the transferor is a resident natural person or a fully taxable resident “resident collective body”³¹ and the “recipient body”³¹ of the contribution is a fully taxable resident collective body31, the transferor may value the assets contributed at the time of the contribution at the values initially used by the “recipient body”³¹, without the employer being able to show lower values in the case of assets or, in the case of debts, values higher than the permissible limit values in the event that the business is continued unchanged.

(3a) Where the ‘beneficiary body’³¹ values the goods received at book value, the date of acquisition of the goods shall be the date taken from the contributor.’

• The “contributor”³² realizes, on the transfer, a profit on transfer within the meaning of Article 15. The present value of the sale price shall be the sum of the values used in accordance with the provisions contained in paragraph 2 or paragraph 3. The provisions of Article 130 relating to the allowance to be deducted from the profit on sale shall not apply where, in the case referred to in paragraph 3 above, the “beneficiary body”³¹ of the contribution does not discover all the capital gains previously undiscovered. The application of the provisions of Article 131 relating to the taxation of extraordinary income is not excluded in the above-mentioned case.
• The purchase price of the equity securities allocated as a result of the contribution is equal to the present value of the transfer price. “Their date of acquisition corresponds to the date of the contribution.” ³²
• Where the equity securities received as consideration for the contribution do not form part of the net invested assets of an undertaking or business subject to income tax and, in this case, the assets contributed are not valued at their going concern value at the time of the contribution, those securities shall be treated as if they constituted the net assets of an undertaking within the meaning of Article 14, 1, acquired at the price fixed in accordance with paragraph 5, except that the following special provisions are to be observed:

1. Current income from capital securities determined in accordance with the provisions concerning commercial profits shall be taxable in the category of income from capital provided for in Article 10(6). Article 54 shall not apply.
2. The profit made on the total or partial realisation of the securities or on the distribution of the assets of the ‘collective body’³¹ is a profit on sale or cessation within the meaning of Article 15, partial realisations being treated as the realisation of a fraction of an undertaking. However, where the realisation takes place less than five years after the acquisition of the securities, the allowance resulting from the application of Article 130, paragraph 1, shall be deducted in full only in the case where the contribution has included an entire undertaking. Otherwise, the allowance is reduced to the fraction that would have been deductible in principle from the profit on the sale that would have been generated from the contribution if all the capital gains had been discovered on that occasion.
3. Equity securities are considered to have been drawn and transferred to private assets at the estimated realizable value:
4. when the holder declares that he is transferring the securities to his private assets,
5. when the holder ceases to be a resident taxpayer,
6. where the right of the tax authorities to the subsequent taxation of a profit on disposal is excluded by a convention for the avoidance of double taxation.

(7) The conversion of a partnership into ‘a collective body’³² is treated in the same way as the contribution of a collective enterprise to ‘a collective body’³².’

(Law of 21 December 2001)

“Art. 59bis.

(1) The provisions of Article 59(3) and (3a) shall apply accordingly where:

1. ‘a fully taxable resident collective body’^[29] contributes an undertaking or an independent part of an undertaking to a permanent establishment indigenous to a company resident in a Member State ‘(…)’³⁴ other than Luxembourg;
2. ‘a fully taxable resident collective body”³³ provides a permanent establishment situated in another Member State ‘(…)’³⁴ to a company resident in a Member State other than Luxembourg.

• The contributor realizes, at the time of the contribution, a profit on the transfer within the meaning of Article 15. The present value of the transfer price shall be the sum of the values retained in accordance with the provisions laid down in Article 59, paragraph 3.
• The purchase price of the equity securities allocated as a result of the contribution is equal to the present value of the transfer price. Their date of acquisition corresponds to the date of the contribution.
• Where, in the cases referred to in paragraph 1(2), the company assets transferred include a permanent establishment located in a State “party to the Agreement on the European Economic Area (EEA)^“33 with which Luxembourg has not concluded a convention for the avoidance of double taxation, the taxable profit generated by the transfer of this permanent establishment shall be determined in accordance with Article 59, Paragraph 2. (Law of 21 December 2007) “However, the fraction of tax corresponding to this profit shall be reduced by the amount of the tax which would have been levied on that profit in that State in the absence of provisions deriving from the amended Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States,  and the transfer of the registered office of a European Company or a European Cooperative Society from one Member State to another, or similar provisions.’

To the extent that the algebraic sum of the previous results achieved by that permanent establishment has reduced the taxable profits of the ‘resident body’³³, the profit generated on the transfer is included in the profit or loss of the ‘resident body’³³ without taking account of fictitious foreign taxes.

• Where a company resident in a Member State ‘(…)’³⁴ other than Luxembourg transferring an undertaking or an autonomous part of an undertaking, constituting a permanent establishment of a Member State, to a ‘resident collective body’³³ which is fully taxable, ‘the latter’³³ may value the net assets transferred at the book value aligned by these assets on the balance sheet of the ‘transferring body’³³ before the transfer or at a value between the book value and the going concern value. In addition, the transfer must be effected by the allocation of shares from the “beneficiary body”³³ to the “transferring body”³³.

Where the “beneficiary body”³³ continues the book values, Article 59(3a) shall apply accordingly.

• The following are to be regarded as companies resident in a Member State ‘(…)’³⁴, companies or firms as defined in Article 22a(1).’

Art. 60. (Art. 65.)

• Where, in exchange for its shares “representing the share capital”³³, a natural person or a collective commercial enterprise, a member of a “collective body”³³, takes over the enterprise or an independent part of an undertaking from the “collective body”³³, the initial valuation of the assets taken over may not be higher and that of the debts taken over may not be less than the going concern value. In addition, the initial valuation as a whole may be lower than the purchase price or the net book value of the securities ‘representing the share capital’³³ only to the extent that the sum of the going concern values of the assets taken over is lower, unless account is taken of any balance.
• Values aligned in accordance with the requirements of the preceding paragraph shall be considered as initial purchase or cost prices. Their sum, taking into account any balance, constitutes the sale price of the capital securities exchanged. However, where the takeover ceases the tax liability of the undertaking or the autonomous part of the undertaking in question, the sale price of the equity securities shall be formed by their estimated realisation value.
• The provisions of this Article shall apply when “a collective body”³³ is transformed into a collective commercial enterprise or when “it is divided”³³ into several collective commercial enterprises. Sub-Section 2 – Agricultural and Forestry Benefit

1. Extent of agricultural and forestry profits

Art. 61. (Art. 69.)

The agricultural and forestry profit is made up of the result that the taxpayer obtains:

1. by cultivating the soil with a view to the production of plants or parts of plants such as agriculture proper, forestry, viticulture, horticulture, as well as market gardening, fruit growing, nursery and greenhouse crops. As far as forestry is concerned, the mere possession of forest land is to be considered as logging.

When the taxpayer sells, in the context of and in the interest of his agricultural holding, agricultural products purchased from third parties, and these products do not regularly account for a significant part in value, all the sales operations form part of the agricultural holding.

A ‘Grand-Ducal Regulation’^[30]  may clarify the concept of a large share within the meaning of the preceding paragraph by fixing percentages on the basis of either the total number of products sold or the farm’s own production. These percentages may vary according to the type of farm;

2. by the rearing or fattening of animals, where the feed for these animals comes or could come from the cultivation of the soil of an agricultural holding unit in proportions and according to criteria to be determined by ‘Grand-Ducal Regulation’35.

Without prejudice to the condition of the origin of the foodstuffs consumed, a “Grand-Ducal regulation”³⁵ may set a minimum period between purchase and sale for taxpayers who habitually purchase livestock in disproportion to the nature and extent of their agricultural estate, in order for the transaction to retain its agricultural character;

3. beekeeping and the operation of fish ponds which do not include special installations of an industrial nature;4. by hunting and fishing carried out by the taxpayer in correlation with his agricultural or forestry holdings.

Art. 62. (Art. 70.)

The agricultural and forestry profit also includes:

1. the rental value of the dwelling forming part of the agricultural or forestry estate of the holder, if the size of the dwelling does not exceed that normally found in similar agricultural or forestry holdings. A Grand-Ducal regulation may establish a flat-rate scheme for the determination of the rental value;
2. the result obtained by the taxpayer in an agricultural or forestry ancillary operation. An agricultural or forestry ancillary operation is considered to be any holding of the taxpayer intended for the use or processing of the products of his agricultural or forestry holding when the products used by the ancillary holding come essentially from the main holding and the processed products retain the character of agricultural or forestry products;
3. the rent or lease of farm property rented or leased to a third party, where the rental or leasing is closely related to the taxpayer’s agricultural or forestry holding;
4. the profit made by the transfer en bloc and for consideration of the holding or of an autonomous part of it or of a part thereof or by the definitive cessation of the holding or of an autonomous part thereof.

Art. 63. (Art. 71.)

Where the activities referred to in Articles 61 and 62 are carried out predominantly in the interests of an undertaking within the meaning of Article 14 or are intimately connected with it, they shall be regarded as ancillary to that undertaking.

2. Applicability of the provisions concerning commercial profit

Art. 64. (Art. 72.)

Unless otherwise provided for in this subsection, the provisions of Articles 16 to 60 shall apply to agricultural and forestry profits. (Law of 26 July 1986)

“Art. 64bis.

A ‘Grand-Ducal Regulation^’35 may, under the conditions and in accordance with the procedures laid down in it, establish a simplified method of determining profit by comparing operating income and expenditure. The same regulation shall prescribe, in the case of transfer or cessation of the business or of a transition from the simplified method to the method of comparison of the net assets invested or vice versa, the adjustments necessary to ensure that the overall profit of the operation, from the creation to the cessation, corresponds to the formula provided for in paragraph 1 of Article 18.’

3. Fiscal year of operation

Art. 65. (Art. 73.)

• The operating year includes the period from 1 January to 31 December.
• By way of derogation from the preceding paragraph, the exercise of forestry operations shall include the period from 1 October to 30 September.
• A ‘Grand-Ducal Regulation’^[31] may, either for categories of holdings or for particular agricultural crops, prescribe a farming year which differs from ‘those provided for in the preceding paragraphs^[32]‘.
• The Director of Contributions may authorize a different operating year for specific operations, where special economic conditions so require.

4. Net Invested Assets

Art. 66. (Art. 75.)

• The net assets invested only include assets which, by their nature, are intended to be used for the business.
• In determining the agricultural and forestry profit, fluctuations in value affecting the land forming part of the fixed asset and the fertilizers and seeds in the ground and the hanging fruit by branches and roots must be eliminated.

5. Evaluation Rules

Art. 67. (Art. 76.)

• Except as otherwise provided in this subsection, ‘property’^{37 of the net assets invested shall be valued in accordance with the rules of Article 23.}
• The operating value in excess of the maximum limits laid down in Article 23 may be taken into account in respect of live livestock during the growing period.
• A “Grand-Ducal Regulation”³⁶ may decree the compulsory valuation, in the circumstances to be determined, of live livestock at the going concern value and enact lump sums in this regard. The same regulation may authorize valuation in excess of the maximum limits provided for in section 23 for other non-depreciable fixed assets.

(Law of 5 March 1980)

‘(4) The land, in the event of a contribution or levy, shall be valued at the purchase price.’

Art. 68. (Art. 77.)

The agricultural or forestry products harvested are to be evaluated at the end of the financial year at their operating value.

6. Early Amortization

Art. 69. (Art. 79.)

A “Grand-Ducal Regulation”³⁶ may establish an early depreciation scheme for fixed assets to be designated.

7. Operating expenses

Art. 70. (Art. 80.)

(Law of 27 December 1973)

‘(1) At the commencement of an agricultural holding, the allowance paid for fertilisers and seeds in the ground and fruit hanging by branches and roots shall constitute deductible operating expenditure notwithstanding the provisions of Article 66(2).

(2) On the transfer or cessation of an agricultural holding, the compensation received for fertilizers and seeds in the ground and fruit hanging by branches and roots shall constitute taxable operating income, notwithstanding the provisions of Article 66, paragraph 2.’

Art. 71. (Art. 82.)

• Remuneration granted to a close relative other than the spouse who is taxable jointly with the operator is deductible as operating expenditure if it is due under a contract of service meeting the conditions to be laid down by the ‘Grand-Ducal Regulation’36.
• In the absence of a contract of service meeting the conditions laid down, the costs of housing and maintenance of close relatives and relatives employed on the holding are deductible under the conditions to be laid down by ‘Grand-Ducal Regulation’36. The regulations may set flat rates for the deduction of these costs. The flat-rate deduction may be reserved for the categories of close relatives to be designated by the regulations. The regulation may fix the degree of kinship or alliance by way of derogation from the definition of kinship generally valid for the purposes of this law.
• In the case of children who are taxed jointly with the farmer under the first paragraph of Article 4, the allowances deductible under the preceding paragraphs are to be regarded as income within the meaning of the second paragraph of the same article, which shall not be subject to joint taxation.
  8. Free transfer

Art. 72. (Art. 85.)

In the event of a transfer of an agricultural holding free of charge during the financial year, the total profit of the two truncated financial years created by the transfer shall be allocated pro rata temporis to the transferor and the transferee when they are both taxable in the head of the holding.

9. Exploitation collective

Art. 73. (Art. 86.)

Collective holdings and partnerships existing between ascendants and descendants are to be regarded as collective holdings within the meaning of Article 14, No. 2, only if:

1. when there is joint ownership of all the fixed assets;
2. when joint management is justified either by the extraordinary importance of the agricultural or forestry estate, or by other exceptional circumstances. In addition, the descendants must participate effectively in the direction and management of the holding and all the members must be the direct or indirect owners of a fraction or essential parts of the fixed assets.
3. Standing wood

Art. 74. (Art. 88.)

• Standing timber is not to be considered part of the soil.
• In the case of regulated logging operations, standing timber from all the areas included in the exploitation plan constitutes a single asset.
• In the event of the alienation of a part of the area of which the standing timber is considered to be a single asset, the standing timber disposed of with the predicted part of the surface area is to be considered as a separate property, the book value of which is to be determined in proportion to the value of the standing timber of the disposed part in relation to that of the whole of the standing timber.

Art. 75. (Art. 89)

(Law of 24 July 2001)

‘(1) Afforestation and reforestation costs, including subsequent cultivation costs, shall be deductible as operating expenses.’

(2) A Grand-Ducal regulation may authorise the allocation of costs over several financial years when they exceed the limits to be set.

11. Deductions for depreciation of standing timber

Art. 76. (Art. 93.)

• No deduction for depreciation of standing timber may be made, except in the case referred to in the following paragraph.
• Where, on the basis of an area considered to be a separate property, the felling or sale of standing timber during the same financial year affects, on the basis of a certificate from the “Nature and Forestry Administration^[33]“, more than twenty-five per cent of the operating value of the timber material considered to be a separate asset, the taxpayer may make a deduction for depreciation without the book value being reduced below the operating value.

12. Extraordinary Cuts

Art. 77. (Art. 94.)

• Timber felling is to be regarded as extraordinary in that the value of the felled wood exceeds the average annual product of the natural growth of the entire holding. The proceeds from the sale of wooded land, the share of the soil being eliminated, as well as the sale of standing timber are assimilated to the product of a timber cut.
• On farms with a sustained annual yield, extraordinary felling is only taken into account if it is dictated by economic reasons. “(…)” ³⁹
• For the purpose of determining extraordinary cuts, the total revenue for the financial year shall be reduced beforehand by the revenue retained in order to determine, in accordance with the following article, the net revenue realized as a result of force majeure.
• Costs directly related to extraordinary cuts must be deducted from the proceeds of these cuts. In addition, the book value deducted and the deduction for depreciation must be set off in the first place against extraordinary cuts.
• The application for recognition of the extraordinary felling must be supported by a certificate issued by the “Nature and Forestry Administration”^[34] or an expert in forestry matters.
• A “Grand-Ducal Regulation”⁴¹ will be able to establish lump sums for expenses deductible from the gross proceeds of cutting or selling on farms that are not likely to generate a sustained annual return and set the conditions required to benefit from these lump sums.

13. Net forest income as a result of force majeure

Art. 78. (Art. 94a.)

(1) The net forest product the realisation of which is caused directly or indirectly by force majeure may be determined separately in order to benefit from the reduced rates provided for in Article 131 (d) of the 1st paragraph.

(Law of 24 July 2001)

‘(2) The following shall be regarded as cases of force majeure, in particular: forced expropriation and alienation to escape forced expropriation, fire, windthrow, frost and the action of pests.’

(3) Cutting or construction of stands that have reached the normal age of economic usability shall be taken into account only if the farmer suffers significant damage as a result of force majeure.

(Law of 24 July 2001)

‘(4) Costs directly related to the products referred to in the first subparagraph shall be deducted from those products. In addition, the book value deducted and the deduction for depreciation of the timber material must be set off against the forest product realized as a result of force majeure if they are economically related to that product.’

(5) Except in the case of forced expropriation, the application for recognition of force majeure must be supported by a certificate issued by the “Nature and Forests Administration”⁴⁰ or by an expert in forestry matters. In the above-mentioned cases of the construction or felling of stands that have reached the normal age of exploitation, the certificate must also state the existence of material damage.

Art. 79. (Art. 94b.)

• The tax authorities may exempt the taxpayer from producing the certificates referred to in Articles 76, 77 and 78.
• The “Nature and Forestry Administration”⁴⁰ is required to issue certificates free of charge.
• It is open to the taxpayer to produce a certificate from a person skilled in the art who is not a member of the “Nature and Forests Administration”⁴⁰.
  14. Benefit from the transfer or cessation of a forestry operation

Art. 80. (Art. 95.)

The transfer price of the forestry operation is not to be taken into consideration for the determination of the profit on transfer within the meaning of Article 62(4) in so far as it is taken into account in determining the income referred to in Articles 77 and 78.

15. Agricultural package

Art. 81. (Art. 98.)

A ‘Grand-Ducal Regulation’⁴¹ may establish a flat-rate scheme for the determination of agricultural profits.

Art. 82. (Art. 99.)

The flat-rate regime will not apply to:

1. to agricultural holdings for which regular bookkeeping will be compulsory;
2. agricultural holdings which, according to the legislation on unit valuation, are not considered to be agricultural holdings in the strict sense. However, when these holdings include land used for agricultural cultivation in the strict sense such as ploughing, meadows or pastures, the profit relating to this land is determined according to the flat-rate scheme;
3. certain categories of agricultural holdings which, according to the legislation on unit valuation, have been considered as agricultural holdings in the strict sense, but for which the flat-rate scheme, by reason of the particular nature of the type of holding, would necessarily lead to a manifestly incorrect result. A “Grand-Ducal Regulation”⁴¹ shall determine the categories of holding to which this provision shall apply;
4. areas used for forestry or viticulture and included in the unit value of an agricultural holding proper within the meaning of the legislation on unit valuation, provided that the areas under forestry or vines exceed the limits to be fixed by the ‘Grand-Ducal Regulation’41.

Art. 83. (Art. 100.)

The flat-rate regime will be based on the average annual return that can be obtained with the exclusive use of foreign salaried staff and will provide in particular for the adjustments required to take into account equitably the rental value of the dwelling, the actual and necessary activity in the business of the taxpayer and the members of his family, the rents for the land taken or farmed,  operating expenses consisting of interest liabilities and other permanent expenses, ancillary income of a certain size, such as that from private crops or ancillary agricultural holdings.

Art. 84. (Art. 101.)

The ‘Grand-Ducal Regulation’^[35]  referred to in Article 81 may, for taxpayers whose total net income consists mainly of agricultural profits determined in accordance with the flat-rate system:

1. determine the due date of the tax other than for the general taxpayers;
2. to set the conditions under which the agricultural profit or the tax assessment, once established, will be valid for more than one tax year.

Art. 85. (Art. 102.)

At his request, the taxpayer whose agricultural profit should be determined according to the flat-rate regime will be taxed on the basis of the actual agricultural profit, provided that the profit is shown in regular accounts and that it is at least twenty per cent lower than the flat-rate profit. In this case, the taxpayer will be taxed on the basis of the actual profit during the year in question and the five subsequent tax years. The application in question must be submitted, on pain of forfeiture, within the time limit to be set for the filing of the tax returns.

Art. 86. (Art. 103.)

The tax authorities may take into account the actual agricultural profit for a taxpayer who meets the conditions determining the applicability of the flat-rate scheme, when the agricultural profit actually made by the taxpayer exceeds the flat-rate profit by at least twenty per cent.

Art. 87. (Art. 104.)

• The agricultural lump sum shall not cover the benefit of transfer or cessation within the meaning of Article 62, No. 4.
• On the other hand, when the forestry income is included in the lump sum, the agricultural lump sum will cover the profit from an extraordinary felling of timber or the alienation of wooded land.
• In the event of the transfer for consideration of the holding or of an independent part thereof, as well as when the forestry income ceases to be included in the agricultural lump sum, the book value of the standing timber shall be determined as if, during the period of application of the agricultural lump sum, no deduction for depreciation had been taken into account.

Art. 88. (Art. 105.)

The provisions of Articles 53 and 54 shall not apply to growers liable to the flat-rate scheme.

16. Lump sum for wine growing costs

Art. 89. (Art. 106.)

• In the case of native wine-growing holdings and the wine-growing parts of indigenous agricultural holdings, provided that these parts do not fall within the flat-rate agricultural allowance prescribed by Article 82(4), a ‘Grand-Ducal regulation’⁴² may establish flat-rate rates for certain cultivation costs.
• The lump sums referred to in the preceding paragraph shall not apply to holdings for which regular accounts shall be compulsory.
• The above-mentioned “Grand-Ducal Regulation^“42 may lay down the requirements necessary to regulate, in the case of mixed holdings, the simultaneous application of the agricultural flat-rate and the flat-rate for wine-growing costs, in particular as regards the value of the work provided by the members of the holder’s family and the rental value of his dwelling.

Art. 90. (Art. 107.)

• The provisions of Articles 85 and 86 shall also apply to holdings subject to the flat-rate system for the cost of growing wine.
• As regards mixed farms, the provisions of Articles 85 and 86 and “the preceding paragraph”^[36] shall apply only where the actual profit for the entire holding differs by at least twenty per cent from the total flat-rate profits. The taxpayer’s option will have to cover both parts of the operation; the same shall apply to the power reserved to the administration to declare the real profit.

Sub-section 3 – Profit from the practice of a liberal profession

Art. 91. (Art. 108.)

(1) The net income from the following activities shall be regarded as a profit from the exercise of a liberal profession, if those activities are carried on independently:

1. scientific, artistic, literary, teaching or educational activity, the professional activity of doctors, dentists, veterinarians, midwives, physiotherapists, masseurs,

lawyers, notaries, bailiffs, executors, property managers, accountants and tax experts, engineers, architects, chemists, inventors, consultants, journalists, photo reporters, interpreters and translators

and similar professional activities;

2. the activities of directors, auditors and persons exercising similar functions in relation to joint-stock companies, limited liability companies, cooperative societies or other bodies within the meaning of the provisions governing corporation income tax. The remuneration of directors is taken into account only to the extent that it is not granted because of the day-to-day management of the company or community.

(2) The net income defined in the preceding paragraph shall be deemed to be a profit from the exercise of a liberal profession even if it is derived from a temporary activity.

Art. 92. (Art. 109.)

The profit from the exercise of a liberal profession also includes the profit made on the occasion of a transfer or termination under the conditions of Article 15.

Art. 93. (Art. 110.)

• Without prejudice to paragraph 2 below, the provisions of Articles 16 to 60 shall apply to the benefit arising from the exercise of a liberal profession in so far as they are compatible with the conditions for the exercise of the liberal profession.
• The net assets invested in the liberal profession include only those assets which, by their nature, are intended to be used for the exercise of that profession and the possession of which is directly related to the exercise of that profession.

Art. 94. (Art. 111.)

• A ‘Grand-Ducal Regulation’^[37] may require the keeping of accounts for the persons referred to in this subsection or for certain categories of them.
• The said regulation may specify the method of accounting to be kept which may differ from that generally provided for traders.

Sub-Section 4 – Income from Paid Employment

Art. 95. (Art. 112.)

(1) The following shall be considered to be income from paid employment:

1. emoluments and benefits obtained by virtue of dependent employment and pensions granted by the employer, before the permanent cessation of that employment;
2. allowances obtained after the said termination by way of arrears of salary or wages or as dismissal indemnities.

(2) Fees and benefits also include all allowances other than non-flat-rate reimbursements of expenses incurred in the exclusive interest of the employer.

(Law of 8 June 1999)

‘(3) Allowances, contributions and insurance premiums paid to a supplementary pension scheme referred to in the Law of 8 June 1999 on supplementary pension schemes. They shall also include allocations made by the employer to an internal scheme referred to in the Law of 8 June 1999 on supplementary pension schemes, as well as, where the employee or his successors have received a benefit paid in the form of a lump sum from such a scheme, the positive difference between the capital paid in and the provision relating thereto existing at the end of the financial year preceding that in which the benefit is paid.’

‘(4)’45 It is irrelevant whether the emoluments and benefits are contractual or voluntary, periodic or non-periodic.

“(5)”⁴⁵ Subject to the provisions of Article 115, the following shall be considered as income from paid employment, in particular: salaries, wages, gratuities, directors’ fees, waiting or availability salaries, subsistence allowances “and unemployment benefits”⁴⁴.

‘(6)’Remuneration^[38]  received by directors and other persons performing similar functions in relation to joint-stock companies, limited liability companies, cooperative societies or other bodies within the meaning of the provisions governing corporation income tax shall also be regarded as income from paid employment, in so far as such remuneration is granted on account of the day-to-day management of the companies or communities.

«(…)»^[39]

Art. 95a.

(Law of 12 May 2010)

‘The following benefits paid by the National Health Fund, the Employers’ Mutual Insurance Fund or the Accident Insurance Association shall, in so far as they replace the wages referred to in Article 95, be classified in that category of income and shall not benefit from the exemption provided for in Article 115(7):

1. the financial allowance referred to in Articles 11 and 101 of the Social Security Code,
2. the maternity allowance referred to in Article 25 of the Social Security Code,
3. the pecuniary allowance referred to in Articles 12 and 101 of the Social Security Code, the allowance derived from voluntary affiliation provided for in Article 52, paragraph 2 of the same Code, the allowance referred to in Article 100, paragraph 2 of the said Code, and the allowance referred to in sub b) above, granted to employees, members of capital companies or collective bodies within the meaning of the provisions governing corporate income tax.’ Sub-Section 5 – Pension Income

Art. 96. (Art. 113.)

(1) The following shall be considered to be income from pensions or annuities:

1. retirement and survivors’ pensions received by virtue of a former salaried occupation and other allowances and benefits, even if not periodic or voluntary, received in the same respect;
2. arrears of annuities, pensions or other periodic allowances and ancillary benefits provided by an independent retirement fund financed in whole or in part by contributions from the insured persons, ‘as well as the education package’^[40], and the pensions referred to in Article 96a;’^[41]
3. arrears of annuities of any kind and other periodic allowances and benefits paid under a title provided that they are not referred to in sub 1 or 2 above and are not included in other categories of income;
4. repeated voluntary allowances and benefits not referred to in sub 1 or 2 above and not included in other income categories.

• Periodic or repeated benefits within the meaning of paragraphs 3 and 4 above shall include the personal exercise of free, life or legal use of a dwelling and its outbuildings of which the taxpayer is not the owner, regardless of the legal nature of the use. A ‘Grand-Ducal Regulation’ ^[42] may, under the conditions and in accordance with the procedures which it may lay down, make applicable, for the establishment of the rental value, the flat-rate fixing to be established pursuant to Article 98, paragraph 2. This flat-rate setting may be arranged differently, depending on the nature or method of acquisition of the right of use. The same regulation may provide for the taxation of the rental value under the heading of Article 98, paragraph 2.
• The income referred to in sub 3 and 4 above is taxable only when it is deductible in principle as an expense to the debtor or donor. The use of a dwelling is taxable in the hands of the beneficiary only when it is not taxable in the hands of the author. (Law of 21 December 2001) “Arrears of annuities and permanent expenses received from a resident divorced spouse are taxable only to the extent that they are deductible under the provisions of Article 109bis.” (Law of 12 May 2010)

“Art. 96a.

The following annuities intended to replace a loss of income are considered to be annuities within the meaning of Article 96(1)(2) and do not benefit from the exemption provided for in Article 115(7):

1. the full pension, the partial pension and the tideover pension referred to in Articles 102 to 117 of the Social Security Code;
2. survivors’ pensions received under Article 131 of the Social Security Code.

The provisions of this Article shall apply to accidents occurring after 31 December 2010 and to occupational diseases declared after 31 December 2010.’

Sub-Section 6 – Income from Movable Capital

Art. 97. (Art. 114.)

(1) The following shall be considered to be income from movable capital:

1. dividends, profit shares and other income allocated, in any form whatsoever, in respect of shares, capital shares, profit shares or other holdings of any kind in the communities referred to in Articles 159 and 160;
2. the shares of profits received, by reason of his investment in an undertaking of the kind referred to in Article 14, by the funder remunerated in proportion to the profit;
3. arrears and interest on bonds and other similar securities, including profit shares and redemption premiums;
4. interest on debts not referred to in sub 2 or 3 secured by a right whose enforceability against third parties is subject to registration or registration in the registers of the Registrar of Mortgages in the Grand Duchy;
5. interest on claims of any kind not referred to in sub 2, 3 or 4, and in particular loans, assets, deposits, savings accounts, current accounts;
6. the discount on negotiable debt securities;
7. special allowances and benefits granted in addition to or in lieu of the allowances specified above under 1 to 6;
8. proceeds from the pre-maturity realisation of dividend or interest coupons or similar products, where the corresponding equity or debt instrument is not realised at the same time as the coupon;
9. compensation obtained on the sale of a fixed-interest security in respect of accrued interest not yet due, when this compensation is taken into account separately.

• In the case of transferable securities with a fixed income payable on the redemption of the security, a ‘Grand-Ducal regulation’^[43] may regulate taxation in such a way that successive holders of the security are taxable in respect of a fraction of income proportional to the period of ownership of the security, provided that the taxable income may not be higher,  for a specific holder, the difference between the realisation price or the proceeds of redemption on the one hand and the purchase price of the security and the costs of realisation on the other.
• The following do not constitute income from movable capital:

1. shares allocated entirely or partly free of charge by capital companies and the related allocation and subscription rights, where the issue of those shares entails a corresponding reduction in the shareholding inherent in the old securities of the beneficiary of the allocation;
2. allowances which are the counterpart of the reduction in the share capital constituted by the contributions of the partners, the part of the share capital possibly coming from the capitalisation of reserves exempt in whole or in part from income tax being deemed to be distributed in the first place; Allowances of this kind remain taxable, however, when the reduction in capital is not motivated by serious economic reasons;
3. withdrawals of payments made in cooperative societies in the absence of distributable profits or reserves;
4. the sums allocated on the basis of the division of the net invested assets referred to in Article 101.(Law of 8 June 1999)

‘(e) allowances which are the consideration for a reduction in the share capital and reserves in the event of a share buyback by the open-ended pension company within the meaning of the Law establishing pension funds in the form of open-ended pension savings companies (SEPCAV) and pension savings associations (ASSEP).’(Law of 21 December 2001). ‘In so far as those allowances are made available under an old-age pension contract referred to in Article 111a, they shall be taxable under Article 99.’

(4) In so far as income referred to in this Article is included in the commercial profit, in the agricultural and forestry profit or in the profit from the exercise of a liberal profession, under the provisions concerning the determination of that profit, it shall be taxable in the corresponding category of net income.

(Law of 21 December 2001)

‘(5) Losses arising from income referred to in this Article shall be offset against positive income arising from this Article. By way of derogation from Article 7, paragraph 2, the excess loss may not be offset against the net income of other categories of income. However, this restriction shall not apply in respect of the income referred to in paragraph 1, paragraph 1, if the taxpayer has a substantial holding in the community within the meaning of Article 100 and derives more than 50% of his professional income from employment in the community.’

(Law of 22 March 2004)

‘(6) Distributions and other income granted to investors and other creditors of a securitisation undertaking shall constitute income from movable capital within the meaning of subparagraph 1(1)(5) of this Article.’

Sub-Section 7 – Income from the Rental of Property

Art. 98. (Art. 115.)

(1) Income from the letting of property shall be considered to be income from:

1. the letting and leasing of movable or immovable property, in so far as this income is not to be classified under numbers 2 and 3 below;
2. the concession of the right to exploit or extract mineral or fossil substances contained within the earth or existing on its surface. The transfer of such substances shall be treated as a concession of the right to exploit or extract unless it relates to a delimited deposit, is not temporary and the payment of the transfer price or part thereof is not staggered according to the intensity of the exploitation;
3. royalties paid for the use or concession of the use of a copyright in a literary, artistic or scientific work, including cinematographic films, a patent, a trade mark, a design, a plan, a secret formula or process or other similar right, as well as for the use or concession of the use of industrial equipment, commercial or scientific information and for information relating to experience acquired in the industrial, commercial or scientific field;
4. the proceeds from the assignment of receivables relating to the rental or lease, even if the receivable relating to a period of time prior to the transfer of a property forms a whole with the sale price;
5. the rental value of the owner-occupied dwelling, including the rental value of outbuildings.

• A ‘Grand-Ducal Regulation’^[44] may establish one or more flat-rate schemes for the determination of the rental value of owner-occupied dwellings.
• These regimes may differ according to the time of construction, the value of the dwelling and the category to which it belongs. To this end, the regulation may define different categories of dwellings, distinguishing in particular between single-family houses, houses in co-ownership divided by apartments and other dwellings and excluding, according to the criteria set out above, certain dwellings from the application of a flat-rate regime.

(Law of 20 December 1982)

‘(4) Where a flat-rate scheme is applied, the interest expense corresponding to the owner-occupied dwelling shall be deductible only within the limits and under the conditions to be determined by Grand-Ducal regulation.’

(5) Where income under this section falls within one of the classes of income referred to in section 10, numbers 1 to 3, it is taxable in the relevant class of income.

Subdivision 8 – Miscellaneous Revenue

Art. 99. (Art. 116.)

(Law of 27 July 1978)

‘Miscellaneous income shall include:

1. speculative profits referred to in Article 99bis;
2. the profits on disposal referred to in Articles 99b, ‘(…)’⁵³, 100 and 101;’

(Law of 21 December 2001)

‘3. income from benefits not included in any other category of income, such as income from occasional intermediaries. However, this income is not taxable when it is less than an annual amount of 500 euros. When the costs of obtaining the production exceed the receipts, the surplus deficit is not compensable; 

4. the repayment in the form of a lump sum under an old-age pension contract and referred to in Article 111bis, paragraph 2, as well as the return of accumulated savings provided for in Article 111bis, paragraph 4. The early repayment of the savings accumulated under such a contract, for reasons of disability or serious illness, as specified in Article 111bis, paragraph 6, is also covered.
5. the early repayment of the accumulated savings and the capital constituting the life annuity paid in advance, which become taxable pursuant to Article 111a(6), as well as the conversion value of the rights accruing to a life annuity referred to in paragraph 2 of the same article into a capital resulting from such a contract.’ (Law of 27 July 1978)

“Art. 99bis.

(1) Profits resulting from the speculative transactions specified below shall be taxable under this Article, in so far as they are not taxable in one of the categories of income referred to in subparagraphs 1 to 7 of Article 10:

1. Realizations of goods recently acquired for consideration. Recently acquired property is deemed to have been acquired when the interval between the acquisition or constitution and the realisation does not exceed:

(b) six months for other property;

2. disposal operations where the transfer of assets precedes the acquisition.

«(…)»^[45]

“(2)” ^[46] (Law of 6 December 1990) “The profit or loss of speculation is equal to the difference between, on the one hand, the realisation price and, on the other hand, the acquisition or cost price plus the costs of obtaining it.” Speculative profits are not taxable if the total profit made during the calendar year is less than ‘EUR 500’^[47].

‘(3)”⁵⁵ This Article shall not apply in so far as a property disposed of constitutes, within the meaning of Article 102a, the principal residence of the taxpayer.’

Art. 99ter.

(Law of 6 December 1990)

‘(1) Income from the disposal for consideration, more than two years after their acquisition or incorporation, of immovable property which does not depend on the net invested assets of an undertaking or on the net assets used for the exercise of a liberal profession shall be taxable under this Article. Also excluded are buildings belonging to an agricultural or forestry holding, except as regards the land.

• The income is equal to the difference between, on the one hand, the realization price and, on the other hand, the purchase price plus the costs of obtaining it.
• In the case of agricultural and forest land, however, at least one lump sum per unit of surface area to be fixed by Grand-Ducal regulation will be deducted as the purchase price. This deduction may not be higher than the net price of the land. The lump sum may be set differently depending on the nature of the land and may not exceed the highest normal selling prices charged for the category of land in question.
• In the case of immovable property acquired for consideration before 1 January 1941 by the holder or, in the case of acquisition free of charge, by its owner, the purchase price paid before 1 January 1941 and revalued in accordance with Article 102, paragraph 6, may not be less than the unit value on 1 January 1941 multiplied by an adjustment coefficient to be fixed by Grand-Ducal Regulation and revalued in accordance with Article 102, paragraph 6, by applying the coefficient corresponding to the year 1940.
• The above-mentioned adjustment coefficients may vary according to the different categories of land, but may not be less than 1.25 or more than 1.50.
• This Article shall not apply in so far as the alienation relates to a built building which constitutes, within the meaning of Article 102a, the principal residence of the taxpayer.’

Art. 99quater.

“(…)”⁵⁷

Art. 100. (Art. 117a.)

(Law of 27 July 1978)

‘(1) Income from the disposal, for consideration, more than six months after their acquisition, of shares, capital shares, profit shares and other holdings of any kind in “collective bodies” shall be taxable under this Article^[48], where the transferor has had a significant shareholding. Income from the disposal of allocation or subscription rights arising from a significant shareholding is taxable in the same manner and under the same conditions. (Law of 21 December 2001) “The same applies to income realized on the sale of a convertible loan when the taxpayer holds a significant shareholding in the “organization”⁵⁸ that issued the loan.”

(Law of 21 December 2001)

‘(2) A shareholding shall be regarded as significant where the transferor, alone or together with his spouse “or partner”⁵⁸ and his minor children, has contributed directly or indirectly, at any time during the 5 years preceding the date of the disposal, for more than 10% of the capital or, in the absence of capital,  to the social fund of the “organization”⁵⁸. For the purpose of determining the 10% threshold, account shall be taken not only of securities belonging to private assets, but also of those which, where applicable, constitute an item of the net invested assets of one of the first three categories of income referred to in Article 10. The holding of a shareholding through the intermediary of “a collective body”⁵⁸, of which the taxpayer has the majority of the voting rights, is to be regarded as indirect shareholding.

The participation is also to be considered significant when the transferor acquired the interest free of charge during a period of 5 years preceding the disposal and the previous holder or, in the case of successive transfers free of charge, one of the previous holders had participated, at any time during the five-year period preceding the disposal,  alone or together with his or her spouse “or partner”⁵⁸ and his or her minor children, directly or indirectly, for more than 10% of the capital or, in the absence of capital, of the “body”⁵⁸.

A participation obtained in exchange for another participation under the conditions of Article 102, paragraph 10, shall be deemed to represent the participation given in exchange.

(3) Notwithstanding the provisions of paragraph 2, the threshold above which an interest is to be considered significant shall be 25% up to and including the 2007 taxation year for interests acquired before 1 January 2002. However, the preceding sentence shall not apply in so far as such a contribution has been increased from 1 January 2002.’

“(4)”^[49] The net income is equal to the realisation price, less the costs of realisation, as well as the purchase price. (4) ‘(…)’^[50]

(5) This Article shall not apply where the holding constitutes an item of the net assets invested in an agricultural or forestry operation or a commercial enterprise or where it forms part of the net assets used for the exercise of a liberal profession.’

Art. 101. (Art. 117b.)

(Law of 27 July 1978)

‘(1) When the assets of ‘one of the bodies mentioned’ in the first paragraph of Article 100 are divided in whole or in part^[51] , the proceeds allocated to the members with significant shareholdings shall be deemed to be the proceeds of a disposition of the shareholding within the meaning of that Article.

(Law of 21 December 2001)

‘(2) The company’s assets shall be deemed to be divided in the event of dissolution, conversion, merger, absorption, division of the “body”⁶¹ or adoption by the “body”⁶¹ of the status of a “tax-exempt body”⁶¹. ‘Exempt’ body61  from taxation means ‘any body not subject’⁶¹ to a tax corresponding to corporate income tax’.

When a shareholding is redeemed or withdrawn and this results in a reduction in capital, the company’s assets are deemed to be shared for the fraction corresponding to the said shareholding.

(3) Except in the case referred to in section 60, property allocated on the division other than in cash shall be valued under section 104.

“(…)”⁶⁰

‘(4)”⁵⁹ Where a significant shareholding is transferred free of charge to a non-resident, the share of the company’s assets is deemed to be divided in the proportion corresponding to that shareholding.

‘(5)’59 In the event of a division of the company’s assets, taxation shall take place in respect of the year in which the proceeds of the division are made available to the shareholder. When the proceeds of the division are made available to the shareholder in the form of allowances or instalment payments, extending over several tax years, it is necessary to tax annually as and when the purchase price has been fully calculated.

(6) The last subparagraph of Article 100 shall apply to the income defined in this Article.’

Art. 102. (Art. 118bis.) (Law of 27 July 1978)

‘(1) The following provisions shall be complied with for the application of Articles 99a to 101.

(Law of 21 December 2001)

‘(1a) The exchange of goods is to be regarded as the transfer for consideration of the property given in exchange, followed by the acquisition for consideration of the property received in exchange. The realisation price of the property given in exchange corresponds to its estimated realisation value.”

• The purchase price of an asset means the price as defined by Article 25, paragraph 1. (Law of 21 December 2001) “The capital gain, transferred to a building acquired or reused in accordance with paragraph 8, reduces the purchase or cost price of this property by the same amount.”
• When an asset has been acquired free of charge by the transferor, the purchase price to be taken into account is the price paid by the previous holder who last acquired the asset for consideration. The same applies when the property has been allocated to the transferor as a lot at the time of an inheritance division, even in the event of payment of a balance by the alloti. A ‘Grand-Ducal Regulation’⁶² may provide for derogations from the preceding sentence in particular cases.
• In the case referred to in the preceding paragraph, the transferor shall be deemed to have acquired the property in question at the time when it was acquired by the holder who last acquired the property for consideration.
• When an asset has been taken from the net invested assets of a company or holding or from the net assets invested in the exercise of a liberal profession, the value attributed to this asset at the time of the deduction replaces the purchase price. The interval between the acquisition and the disposal is nevertheless calculated in relation to the actual date of acquisition.

(Law of 4 December 1984)

‘(6) The purchase price to be taken into account for the purpose of determining the income referred to in Articles 99b to 101 shall be revalued by multiplying it by the coefficient corresponding, according to the table below, to the year in which the expenditure constituting the purchase price was incurred.’

(Law of 18 December 2009)

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[4] As amended by the law of 6 December 1990. ⁶                          As amended by the law of 9 July 2004.

[5] As amended by the law of 6 December 1990.

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