11 April 2017

Luxembourg Permanent Establishment (PE)= no branch tax on profits

A foreign company developing activities in Luxembourg may consider establishing a permanent place of business, a branch or a simple representation office in Luxembourg.


This choice could trigger different tax implications depending on the structure.

A PE,  which is an installation or facility fixed to a definite location and serving the operation of an established business, faces the question of allocation of income between a company headquartered abroad and its Luxembourg’s PE.

The attribution (or not) of income to a Luxembourg PE ties back to the economic functional analysis of the PE. The Foreign company must be prepared to justify why it attributes income to its PE, on the basis of an economic functional analysis and also on the basis of a geographical nexus between the source of the relevant income and the PE.

The income attributable to a foreign PE may only consist of income generated locally.

The local corporation tax rules applies and it might arrive that the substance of such a PE is not sufficient to be considered as a taxable person in Luxembourg.

Remittance or repatriation of profits from Luxembourg to the foreign company, being established in a double tax treaty country or not, is not subject to a withholding tax (branch tax).

The conversion of a Luxembourg PE into a company by a contribution in kind can also be tax exempt.

Some foreign companies also sets up a subsidiary company to carry their activities from Luxembourg.


For more information, contact us: corporate@creatrust.com


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