Luxembourg tax rules in relation to estate planning have not fundamentally changed over the last few years. Luxembourg remains stable for high-net-worth individuals wishing to manage their private wealth. See the following for an overview of tax considerations for Luxembourg tax residents.

Income tax

Luxembourg income tax is levied on the net taxable income, consisting of the aggregate gross income less deductible expenses, earned by the taxpayer during the tax year.

The individual income tax rates are progressive, ranging from 8% to 42%. An employment fund contribution is added to the above rates of income tax, which is set at 7% (and 9% for income exceeding EUR 150,000 in case of single taxpayers or EUR 300,000 for couples assessed jointly). The progressive income tax rates (including the employment fund contribution) range from 8.56% to 45.78%.

All taxpayers are divided into three tax classes: a tax class is a computation formula whereby the income tax burden is recalculated in order to take into account of family/personal circumstances.

Married individuals are, by default, jointly taxed. Since 2018, married individuals can opt for a separate taxation.

Gift taxes

A gift tax (droit de donation) will be levied on any donation if the gift is recorded in a Luxembourg notarial deed and/or submitted for registration in Luxembourg. The proportional gift tax is computed on the net fair market value of the asset transferred and the tax rates vary depending on the kinship between the donor and the donee (from 1.8% to 14.4%).

Inheritance taxes 

An inheritance tax (droit de succession) is levied on the net fair market value of the worldwide estate of a Luxembourg tax resident at the moment of their death. However, inheritance of immovable property located abroad is expressly exempt from Luxembourg tax, even if this property is not subject to tax in the jurisdiction where it is located. 

The inheritance tax rates vary depending on the kinship between the parties, on the amount of the transferred estate and on the question of whether the estate is received on the portion the heir is entitled to under intestacy rules (from 0% to 15% – there is no inheritance and succession tax on direct line descendants).

Any inheritance with a net value exceeding EUR 10,000 is subject to a surcharge tax varying between 1/10 and 22/10.

Wealth tax

There is no wealth tax for natural persons in Luxembourg.

Taxation of investment income 

As a rule, dividend and interest income are taxed according to the progressive tax rates, irrespective of whether the distributing company is resident or non-resident.

• A 50% exemption is granted on the gross amount of dividends received by a Luxembourg resident shareholder under certain conditions.
• Interest income (or similar income) may – under certain conditions and formalities – be subject to a discharging withholding tax of 20%. 

Capital gains on shares realised by a resident individual acting within the management of their private wealth are taxable if they qualify as either speculative gains or gains on substantial participation:

• Speculative gains. Any capital gains on shares realized within the first 6 months of their acquisition (or if their disposal precedes their acquisition) are taxed as miscellaneous income subject to the progressive income tax rates applicable to the individual.
• Gains on substantial participation. A participation is deemed to be substantial where a resident individual shareholder holds (either alone or together with their spouse/partner and/or minor children) directly or indirectly, at any time within the 5 years preceding the disposal, more than 10% of the share capital of the issuing company. A shareholder is also deemed to have disposed of a substantial participation if it was acquired for no consideration within the 5 years preceding the disposal, and if it constituted a substantial participation when held by the alienator (or alienators, in the case of successive transfers for no consideration within the same 5-year period). 
  Capital gains realised on a substantial participation are subject to income tax by applying the half-global rate method (i.e. between 0% and 22.89% in 2022) and reduced by an allowance of EUR 50,000 (EUR 100,000 for spouses/partners filing jointly) every 10 years.

Besides, capital gains realised on non-substantial participation or on shares held for more than 6 months are not taxable in Luxembourg. 

There are no very recent legislative developments but – nonetheless – we would like to emphasise the following changes introduced into the Luxembourg tax landscape over the last few years which are relevant for private clients:

• Since the law of 18 December 2015, a step-up principle has been introduced with regard to securities forming part of a significant shareholding (i.e. more than 10% in the target company) in the assets of an individual upon the transfer of tax residence to Luxembourg. This domestic rule provides for a revaluation of the acquisition price of the above-mentioned securities at the fair market value as of the date of migration to Luxembourg without having any impact on their holding period.
• The Luxembourg law of 25 March 2020 has implemented the EU Directive 2018/822 dated 25 May 2018 (DAC 6) and introduced a mandatory reporting obligation for Luxembourg resident intermediaries, or relevant taxpayers, on cross-border arrangements and transactions involving Luxembourg entities with characteristics or features presenting an indication of potential risk of tax avoidance (according to listed hallmarks). 

There has been no recent national case law relevant to private clients.

There has been no recent local case law relevant to private clients.

Family members usually use Luxembourg limited partnerships to transfer the family business to the next generation, this can be combined with the subdivision of the ownership right (usufruct and bare-ownership schemes, see Section 2.5 Practice trends: Subdivision of proprietary rights).

The contractual freedom provided by these investment vehicles allows the partners to draw up the contract in order to ensure the transmission of the inheritance in the best way. 

The special bilateral agreements signed between Luxembourg and the Belgian, French and German authorities concerning the taxation rules applying to cross-border workers in the context of the COVID-19 pandemic came to an end on 30 June 2022.

Consequently, from 1 July 2022, the general rules on the taxation of employment income received by Belgian, French and German cross-border commuters (i.e. employees residing in France, Germany or Belgium and commuting to Luxembourg to perform employment-related activities) apply.

The Grand Duchy of Luxembourg is a civil law jurisdiction. 

Title I of Book III of the Civil Code on the settlement of successions dates back to 1804. It has since been developed several times in order to adapt to changing customs, but without abandoning its main principles; for example, that of property passing to the closest heir (la mort saisit le vif) or that of forced heirship (réserve héréditaire).

Indeed, unlike in common law jurisdictions, death results in the automatic transfer of ownership of the property held by the deceased at death to the legal heirs (provided they accept the estate).

Thus, under Luxembourg law, there is no need to appoint an executor, as the accepting heirs can administer and manage the property, as well as dispose of it (although there are certain exceptions to this principle, particularly where the heirs are not legal heirs but rather legatees). 

Moreover, Luxembourg domestic law does not contain the concept of the trust. It is therefore not possible to create a trust under Luxembourg law. However, Luxembourg has ratified the Hague Convention of 1 July 1985 on the Law Applicable to Trust and their Recognition, and the Law of 27 July 2003 approving the Hague Convention of 1 July 1985 on the Law applicable to Trusts and on their Recognition, as amended, therefore trusts that are validly established under foreign law will be recognised, and will thus be able to produce their effects and be executed on Luxembourg territory. 

Note also that, since a bill creating a register of fiducies and trusts was adopted on 1 July 2020, foreign trusts have been obliged to complete disclosure formalities with the Luxembourg authorities if the trustee is established or domiciled in Luxembourg, or if they enter into a business relationship with a professional established in Luxembourg, or if they acquire real estate located in Luxembourg for the trust. 

In this respect, there is, for example, an obligation for the trustee to keep an internal file listing the beneficial owners of the trust at the trust’s registered place of business if it is administered from the Grand Duchy of Luxembourg. The file is accessible to national competent authorities and professionals with whom the trustees enter into a business relationship or carry out certain types of transactions.

Such information must also be shared with the Luxembourg authorities, by filing with the Luxembourg register of fiducies and trusts. Such information is therefore available to:

• national competent authorities such as the public prosecutor and the tax administration upon their request for the purpose of their supervisory duties; but also 
• self-regulatory bodies (i.e. the Bar Council and the Chamber of Notaries); or 
• professionals of the financial sector (such as credit institutions and insurance companies) in the context of their customer due diligence measures. 

The public has no access to this register of fiducies and trusts. 

Non-compliance with the obligations imposed on the trustees is punishable by administrative penalties such as fines of up to EUR 1,250,000.

Luxembourg legislation is adopted by the Chamber of Deputies (who currently number 60), and comes into force after promulgation by the Grand Duke and publication in the Official Journal of the Grand Duchy of Luxembourg (see https://gouvernement.lu/fr/systeme-politique/chambre-deputes.html).

As the country is not divided into federal states, it has only one legislature, at the national level.

Under Luxembourg law, it is not mandatory to have an executor to settle an estate. In fact, the vast majority of successions are settled without the intervention of an executor. As appointing one is optional, it is up to the testator to choose whether to do so, under the terms of the will.

The main role of the executor is to ensure the proper execution of the last will and testament, but also to release the legacies to the beneficiaries or to draw up an inventory of the estate’s assets. They may also take legal action if the provisions of the will are not carried out.

In the performance of their duties the executor is liable to the testator’s heirs, who may ask the executor to give an account of how the tasks were carried out.

Thus, the executor has a role to play in the settlement of the succession, but does not replace the heirs. Moreover, it has been ruled that the executor cannot decide on a resumption of proceedings initiated by the deceased because the executor is not called upon to succeed the deceased, as only the heirs have this power (Court of Appeal, 20 October 2010, roll number 31770). 

The executor under Luxembourg law therefore has the role of a guardian, verifying that operations are carried out in accordance with the deceased’s last wishes and having the power to protect them if necessary. 

For the reason stated in Section 2.2, Luxembourg does not have local case law (only national case law).

Succession management where the deceased was married

Under Luxembourg law, the succession of a married person cannot be settled without first considering their matrimonial property regime. 

The assets of a married person are subject to the matrimonial regime under which that person was married. That is why it is essential to proceed to liquidate the matrimonial regime first, and only then to settle the estate. 

There are four main matrimonial property regimes:

• The legal regime applied by default or by agreement: community of property acquired after marriage (communauté de biens réduite aux acquêts). Under this regime, all assets acquired from the marriage with fruits and income received during the marriage, are owned in common by both spouses, whereas property acquired before the marriage (or by inheritance or gift even during the marriage) remains the property of the spouse who acquired or received it. Thus, when a person married under the legal regime dies, it is necessary to liquidate the matrimonial regime to know the inheritance (in other words, to determine which assets belonged to the deceased in full ownership and which belonged half to them and half to their spouse). 
• The regime of joint ownership of all property (communauté universelle) is one where the spouses choose to put all assets in common, whether they were acquired before or during the marriage, even as gifts or inheritance. This regime is often supplemented by a clause of full allocation to the surviving spouse (clause d’attribution intégrale), so that upon the death of the first spouse, all assets are transferred to the surviving spouse in their sole name. It should be noted that means of protection exist for descendants from previous unions to prevent them from being disinherited. 
• The separate property regime (séparation des biens) is one under which each spouse remains the sole owner of the property they acquire or receive before and during the marriage. In this case there is no need to liquidate the matrimonial property regime, although there may still be claims between the spouses (loans from one to the other) to be taken into account in the settlement of the estate. 
• The regime of participation in matrimonial assets (participation aux acquêts) is similar to a separate property regime during the marriage, but if the marriage is dissolved, it causes any increase in the assets of the spouses to be shared between them. Thus, at the time of marriage dissolution, it resembles a joint ownership regime. This hybrid regime must be liquidated as part of the succession settlement in order to determine the inheritance to be divided among the heirs.   

Thus, estate planning inevitably involves matrimonial arrangements for future spouses or married couples. This is something that our clients understand, and for which demand is increasing. 

Subdivision of proprietary rights 

Another practice in Luxembourg law is the subdivision of proprietary rights (démembrement de propriété). This is where full ownership, which is composed of bare ownership (abusus) and usufruct (usus and fructus), is divided among multiple persons. 

The usufructuary has the right to use the property and to receive the fruits of it (e.g. to live in a house or to rent it out and receive the rent), whereas the bare owner has a right to recover full ownership of the property when the usufruct ceases to exist.

The usufruct can be for a fixed period, or it can be for life (i.e. ending on the day the usufructuary dies).

Full ownership is established automatically at the end of the usufruct.

The appeal of this mechanism is that a person can, securely and with long-term effect, distribute assets during their lifetime by giving away the bare ownership or, for example, allocate assets to multiple generations when they die by bequeathing subdivided proprietary rights to different parties. This mechanism allows for flexibility in the organisation of clients’ assets, and is much appreciated by them for its greater efficiency.

Unlike neighbouring jurisdictions, Luxembourg did not experience any changes in how last wills and testaments were made or how powers of attorney were granted during the COVID-19 pandemic. 

However, there were some temporary changes in company law on how general meetings of shareholders or boards of directors may be held, whether for companies or associations. These changes allowed participants to take part at a distance even when not provided for in the articles of association and decisions to be taken by means of written resolutions despite this sometimes being prohibited by law. Note that by the time this document is published, this temporary exceptional regime will most likely have ended.

Until recently, trusts did not have to be reported to any particular Luxembourg register, as they are not entities with a tradition in Luxembourg law.

However, this began to change with the law of 13 January 2019 establishing a register of beneficial owners (RBO). This law obliged companies and Luxembourg entities like non-profit organisations to list their beneficial owners in the national RBO. For anti-money laundering and counter terrorist financing purposes, they also have to keep an internal file containing the beneficial owners’ information at their registered address. As a result, a foreign trust that owns a Luxembourg company through the trustee may be viewed as the beneficial owner of that company. In those cases, the RBO may need to contain information on the settlor, the trustee, the beneficiary and the protector (if any). The information in the RBO consists of names and surnames, nationalities, place and date of birth, country of residence and nature of the interests (settlor, trustee, beneficiary, protector, and so on) and was publicly accessible.

However, the judgment of November 22, 2022 by the Court of Justice of the European Union ruled in relation to Directive 2018/843 that the provision of the latter providing that information on the beneficial owners of companies incorporated in the territory of the Member States be accessible in all cases to any member of the general public was invalid. Following this judgment, the Ministry of Justice required Luxembourg Business Registers (LBR) to immediately suspend all public access to the RBO pending the introduction of access rights more in line with the conclusions of the Court’s ruling.

As a first step, on 16 December 2022, the LBR announced a new procedure for obtaining access to the RBO, applicable solely to professionals that are subject to the amended law of 12 November 2004 on the fight against money laundering and terrorist financing. 

The access to the RBO then has been enlarged under conditions to journalists following an agreement between LBR and the Press Council signed on 20 December 2022. 

On 1 February 2023, the LBR announced that it has put into place a procedure for entities to access their own RBO data by means of a confidential code.

All data in the RBO database can be viewed except for personal data such as addresses and personal identification numbers. It is possible to request that access to certain beneficial ownership details be restricted, but these restrictions must be temporary and justified. Justifying circumstances might include, for example, a disproportionate risk of fraud, kidnapping, blackmail, extortion, harassment, violence or intimidation, or when the beneficial owner is a minor.

If the RBO approves a request to restrict access to beneficial ownership details, they will only be accessible to a certain category of professionals such as national authorities, lending institutions, financial institutions, bailiffs and notaries.

To our knowledge, the only such requests that have been granted to date have been for beneficial owners who are minors. 

Luxembourg legislation is adopted by the Chamber of Deputies (who currently number 60), and comes into force after promulgation by the Grand Duke and publication in the Official Journal of the Grand Duchy of Luxembourg (see https://gouvernement.lu/en/systeme-politique/chambre-deputes.html).

As the country is not divided into federal states, it has only one legislature, at the national level.

Under Luxembourg domestic law, a testator can express their last wishes and arrange for what will happen to their property after they die by means one of the following:

• an authentic will: one that must be drawn up by two notaries or by a notary in the presence of two witnesses; or
• a holographic will: one that is handwritten, signed and dated by the testator; or
• a mystic will: one that must be prepared in advance and presented in a closed envelope to the notary, who will seal it, and who must then draw up a special deed (acte de suscription) in the presence of two witnesses.

For many years, the question of how to revoke authentic wills was a controversial topic in both case law and legal scholarship.

The controversy stemmed from a specific interpretation of articles 980 and 1035 of the Civil Code, according to which an authentic will could only be validly revoked by means of another authentic deed. 

However, the Court of Cassation eventually helped dispel the legal controversy surrounding the revocability of authentic wills by ruling that a testator can validly revoke an authentic will by means of a subsequent holographic will (decision of 5 July 2018, docket number 77/2018).

This welcome decision put an end to a long period of uncertainty in inheritance law.

For the reason stated in Section 3.2, Luxembourg does not have local case law (only national case law).

The subjects of litigation in inheritance matters are as numerous as they are varied. Among other examples, disputes may arise over which law applies where a foreign element is involved or for the purpose of contesting a will’s validity, or even over how to legally characterise an instance of inheritance fraud (where an heir appropriates an inheritance to the detriment of the other heirs). 

A number of measures have been agreed between the Courts and the Bar since the beginning of the pandemic in 2020 in order to be able to exit the crisis under favourable conditions.

To reduce lawyers’ travel to a minimum, email accounts were set up to handle routine case management electronically. It was thus agreed that, except for the submission of documents (which must be done by post), exchanges should be done electronically by means of these special email addresses. 

In addition, it was agreed that lawyers should request an appointment to argue a case, to avoid having too many people in the courtroom at once.

In general, all exchanges were kept to a minimum.

Although the health measures have been lifted now that the pandemic has died down and the situation has almost returned to normal, some other measures that proved beneficial remain in place. For example, the email accounts are still used, and some requests can still be made by email. In addition, the system of prior appointment for oral argument of scheduled cases remains compulsory in some courts.

The questions our clients ask most routinely are about the possible forms for drawing up a valid will (see Section 3.3 National case law developments) and, for those who wish to marry, which matrimonial regime they should adopt (see Section 2.5 Practice trends: Subdivision of proprietary rights). 

Our more senior clients are concerned with the transmission of their assets, and thus their requests tend to relate to gifts and donations. These entail immediate and irrevocable dispossession. However, they can, under certain conditions, also be made under foreign law, and will be in principle fully recognised in Luxembourg as long as they were made in accordance with the foreign legal requirements.

Finally, our clients who have family and assets in several countries often want to know which law applies to their succession, and whether this law will be recognised in the countries where their children reside or their assets are located. Thanks to the EU Succession Regulation, only one applicable law is recognised for a given succession: that of the deceased’s last habitual residence or, if chosen, that of their country of nationality (even if not an EU Member State).