Permanent Establishment

Business, branch or representative office in Luxembourg

A Luxembourg resident company developing activities in another country may consider establishing a permanent place of business, a branch or a simple representation office abroad. This decision could trigger different tax implications depending on in which country the permanent establishment will be based.

Indeed, all income generated by a Luxembourg resident company is taxable in Luxembourg, on a worldwide basis. If a Luxembourg company establishes a Permanent Establishment in a country with which Luxembourg has signed a Double Taxation Treaty, then the profits realised through this branch may generally be taxable in that country.

Permanent Establishment In Luxembourg

When a company has a fixed place of business in Luxembourg and benefits from the various fiscal opportunities created by Luxembourg Law it will be considered permanently established if:

  • it has a person who can represent the company in Luxembourg,
  • the representative undertakes this role on a permanent basis,
  • there is a premises which can be considered a headquarters and stock, held at that premises.

Tax Implication of having a Permanent Establishment

If the branch is set up in a Double Tax Treaty (DTT) Country: then the branch's profits will be taxed in that DTT country following the rule and rate of corporation tax applicable to that country. The branch's profits will generally be tax exempt in Luxembourg and the assets held in the branch will also be tax exempt for Luxembourg wealth tax.

If the branch is set up in a non-Double Tax Treaty Country, then the branch's profits will be taxed in that non-DTT country following the rule and rate of corporation tax applicable.. The branch's profits will generally also be taxable in Luxembourg and the company will receive a Tax Credit on the Luxembourg Corporate Income Tax. The assets held in the branch will be taxed at the Luxembourg wealth tax rate.

Type of Permanent establishments (Fixed PE)

The Service Permanent Establishment (Service PE)

Subsidiary or branch

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