NEW UK-LUXEMBOURG TAX TREATY IN FORCE SOON!

This newsflash is generously provided to you by the member Firms of the BCC Tax Group

Dear Member of the Chamber:

As you may know, the current tax treaty between the United Kingdom and Luxembourg was signed in London in May 1967 (before the UK joined the EEC) and was amended several times over the years.  A new UK-Luxembourg tax treaty was concluded in June 2022 (after the UK left the EU) and will enter into force in 2024.

The main reasons for an overhaul of the existing tax treaty include the UK’s withdrawal of the European Union (Brexit) and the evolution of tax standards put forward by the OECD and the BEPS project in recent years.

What you need to know

The new treaty is largely based on the OECD Model Tax Convention and contains the highest international tax standards on tax transparency.  The new treaty does introduce some significant changes relative to the current treaty, including but not limited to:

1. No withholding tax on dividends paid by Luxembourg companies to UK companies and individuals alike (exceptions apply).  This is a major departure to the existing treaty, and aligns with UK domestic law which does not levy a withholding tax on dividend payments.
2. No withholding tax on royalties (down from 5% under the existing treaty).
3. Introduction of the so-called “real estate rich” or “land rich” company clause, pursuant to which gains derived by a resident of a state from the alienation of shares or comparable interests, deriving more than 50% of their value directly or indirectly from immovable property, may be taxed in the state where the immovable property is situated.
4. Unlike the OECD Model Convention, the new treaty allocates the taxing right of pensions and other similar remuneration to the source country, i.e., not to the state of residence.
5. Tax residency:  The Mutual Assistance Procedure replaces the effective management tie-breaker rule.

The favourable zero-rate Luxembourg withholding tax on dividends to UK recipients, should provide for substantial new investment opportunities between the UK and Luxembourg.

For more information on the new UK-Luxembourg tax treaty, please visit:

• PwC
• EY
• KPMG

Please note:  The information and opinions contained herein are for information purposes only. They do not constitute any form of legal or tax advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances and is not intended to be relied upon in making (or refraining from making) any specific decisions.

External links are selected when the BCC newsflash is sent. However, the BCC is not responsible for the content of external websites. The inclusion of a link to an external website by the BCC should not be understood to be an endorsement of that website or the site’s owners, products or services.

Kind regards,

BCC Secretariat