Holding company in Luxembourg: participation exemption, rates and comparison with Andorra

In brief

Luxembourg is the most classic holding company country in Europe: a long-established participation exemption regime, an extensive treaty network, and banks and service providers experienced with international structures. Its price: a high rate of tax on everything that is not exempt, and a requirement for genuine substance.

Taxation of the company

The corporate income tax rate is 16 %verified on 12/10/2026 in 2026. To this are added an employment fund contribution of 7 %verified on 12/10/2026 of that tax and the municipal business tax, at 6.75 %verified on 12/10/2026 in Luxembourg City. The overall rate therefore clearly exceeds the Andorran rate of 10 %verified on 09/10/2026. A reduced rate exists for small profits: to be confirmed in the official guide before any calculation.

The participation exemption

Dividends and capital gains on qualifying shareholdings may be exempt from corporate income tax and municipal business tax. Holding conditions: 10 %verified on 12/10/2026 of the capital, or an acquisition price of at least 1,200,000 €verified on 12/10/2026 for dividends (6,000,000 €verified on 12/10/2026 for capital gains), for at least 12 monthsverified on 12/10/2026 without interruption. Dividends from a European subsidiary are excluded if the payment is deductible in the subsidiary's State, and abusive arrangements are set aside.

Withholding tax on dividends

The domestic withholding tax is 15 %verified on 12/10/2026. It may be removed for a recipient company that holds the required shareholding for 12 monthsverified on 12/10/2026, in a treaty country or in the European Union.

Who it suits, and who it does not

Luxembourg suits groups with subsidiaries in several European countries, structures that need a solid banking and regulatory image, and arrangements where the parent-subsidiary directive applies. It suits a sole entrepreneur with one shareholding less well, because substance and management costs outweigh the gain.

Compared with Andorra

Andorra exempts from 5 %verified on 12/10/2026 of shareholding held for 12 monthsverified on 12/10/2026, provided the subsidiary is sufficiently taxed. The Luxembourg threshold is higher, but the framework is older, covered by the European directives and better accepted by banks. For an Andorran resident, the distribution to the partner is exempt from IRPF on the Andorran side; this is not an advantage of the Luxembourg holding company. See the holding company in Andorra.

For a French resident

Luxembourg is not a privileged tax regime within the meaning of the comparison with the French rate: the risk lies mainly in effective management and abuse of law if the holding company is run from France.

To verify

The figures on this page come from foreign firms and administrations, verified on 12 October 2026: they are dated in our database and should be confirmed with a local adviser before any decision. This page is a benchmark, not tax advice. The reduced rate on small profits and the way the exemption applies to a specific structure are not detailed here.

The other countries

Country comparison for a holding company, holding company in Andorra, Netherlands, Malta, Cyprus. Test the Andorran conditions in the holding company simulator.