The tax declaration of civil companies

Transparent entities in Luxembourg

A transparent company, under Luxembourg tax law, is a legal entity whose income and expenses are attributed directly to its partners rather than to the company itself. In other words, the company does not pay tax on its profits in its name; instead, the partners (whether residents or non-residents) are taxed individually on their share of the profits. This feature is found in certain types of companies, such as civil real estate companies (Société Civile Immobilière or SCI), known as “transparent” for income tax purposes.

A frequently asked question for transparent companies when preparing tax returns is which form to file: the Form 200 or Form 300? In light of Circular L.I.R. No. 168quater/1 and the new Frequently Asked Questions (FAQ) published by the Luxembourg Tax Administration (LTA), several questions arise regarding whether the Form 200 and 300 should be completed.

The following information is intended to help practitioners and taxpayers better understand the key differences between these two tax returns and their respective fields of application.

1. The tax form 200: in which cases to use it?

The Form 200 (“Declaration for the collective establishment of income from collective enterprises and co-ownerships”) is designed for transparent entities whose income primarily comes from real estate under Article 98 of the Luxembourg Income Tax Law (LITL)—for example, rental income or the passive holding and management of real estate in Luxembourg.

Example
A civil real estate company (SCI) that owns a building in Luxembourg and receives rental income, without carrying out any commercial activity. Such an SCI, being transparent for corporate income tax (CIT) purposes, would complete Form 200 to declare the portion of profits attributable to each partner (whether resident or non-resident).

Certain legal structures, such as civil real estate companies or other transparent companies that are not engaged in commercial activities but are involved only in agricultural, forestry, or self-employed activities, are not subject to municipal business tax (MBT) if they do not conduct commercial activities.

Important: The form 200 is not intended for transparent entities that generate primarily investment income (Article 97 LITL) or various types of income other than real estate (Article 99 LITL). According to the clarifications in the FAQ, these entities now switch to the Form 205 if they meet the relevant criteria (for example, an SCS/SCSp earning interest or dividend income).

2. The tax form 300: strictly used for companies subject to MBT

Before addressing the Form 300, it is critical to define MBT, which is a “real” tax—meaning it is based on the business activity itself, rather than on the individual entrepreneur. As a result, even if a company is “transparent” for CIT purposes (i.e., its profits are taxed in the hands of the partners), it may still have to pay MBT if it carries out a commercial activity in Luxembourg. The MBT applies to companies engaging in commercial, industrial, or artisanal activities.

The Form 300 (“Declaration for the collective establishment of commercial profit and declaration for the municipal business tax”) applies, for example, in situations where a civil company (which theoretically should not be commercial) actually carries out a commercial activity and derives commercial profits, or if the partners take an active part in a commercial activity.

Commercial profit, as defined in Article 14 LITL, represents the result of activities of a commercial, industrial, or artisanal character. Broadly, it is calculated by taking the difference between income (from the sale of goods, provision of services, etc.) and expenses (costs, depreciation, etc.) directly related to running a business or conducting commercial transactions.

Example
A civil real estate company (SCI), which in principle is non-commercial, that in practice develops a real estate project (development, subdivision, construction-sale) may be reclassified as a commercial company due to the extent of the economic activity undertaken.

Regardless of whether an entity’s income is of a mixed nature (civil, commercial, etc.), if it is reclassified as commercial, all of its income is included in the tax base for MBT¹.

Thus, when a transparent entity truly operates a commercial activity subject to MBT, the Form 300 must be completed.

3. Summary table

1. The principle of “attraction” in tax law.
2. Any entity falling under Article 168quater LITL (an “inverted hybrid entity”) must file the Form 205, which covers both the collective establishment of income and the corporate income tax portion.