Corporate taxation

Published on Apr 29, 2015 by LPG

LPG luxembourg : taxation on liquidation incomes

TAXATION ON LIQUIDATION INCOME

Sooner or later, companies disappear. Companies can can terminate involuntarily (due to bankruptcy) or voluntarily (liquidation resolved by owners). As a company is being liquidated, a liquidator is to be appointed to sell the assets and to pay the creditors and staff. Once this is done, it is determined whether the liquidation carried a profit or loss. If there is profit, the liquidator must distribute the proportional amount due to shareholders or partners.

1- Determining a liquidation profit or loss

Conversely, if the assets amount to less than the debts and the share capital investments, then there is a loss of liquidation.

2- Taxation for profit of liquidation in different circumstances

a. Liquation of a Luxembourg corporation: no tax is due, including no withholding tax, in Luxembourg on the distribution of profits to shareholders regardless of their legal status or place of residence. They may repatriate their investments without incurring a withholding tax1;

b. Liquidation of an affiliate of a Luxembourg SOPARFI: the profit of liquidation paid to the SOPARFI for the liquidation of an affiliate company is not subject to tax regardless of the tax residence of the affiliate company, provided that the conditions for the SOPARFI tax regime are met2;

c. Liquidation of a private wealth management company (Luxembourg SPF): no withholding tax is due, but there will be either a tax or exemption depending on the country of residence of the beneficiary3.

3- Case studies

Mr. X and Mrs. Y are respectively 60% and 40% shareholders in the company 'Best Business' SARL.

On September 16, 2014, they decide to liquidate their company.

  • Share capital: 12,500 €
  • Legal reserve: 1,250 €
  • Reported profits: 33,579 €
  • Debt to shareholders: 17,829 €
  • Cash in bank: 28,340 €
  • Stock: 8,981 €
  • Client debt: 27,837 €

The profit of liquidation in this example is 34,829 € (net assets minus share capital). It is paid out  at 20,897 € to Mr. X and 13,932 € to Mrs. Y, without being subject to withholding tax.

 

1 : Aricles 97 L.I.R. and 146 L.I.R.
2 : Aricle 166 L.I.R.
3 : Law of May 11, 2007 on SPF companies

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