Under fortunately rare circumstances, Luxembourg tax residents deciding to leave Luxembourg remain subject to income tax in Luxembourg on the sales of shares of Luxembourg companies in which they have significant ownership even after they left.
Reminder on Luxembourg tax law applicable to the sale of shares
The law states that the capital gains a private person who holds (or over the last five years held or has held), alone or together with members of their family, at least 10% of the shares of a company are taxable income in Luxembourg1.
The situation when a Luxembourg resident ceases to be a resident
In principle, when a Luxembourg tax resident become a resident of another country, he is no longer subject to income tax on capital gains in Luxembourg.
But in order to defeat a tactic which would have consisted, for Luxembourg tax residents desiring to avoid taxation, to relocate a few weeks before the sales of their shares in a country where capital gains realized by private persons are not taxable, the Luxembourg tax law includes safeguards provisions sometimes qualified as exit tax2.
Following these provisions, a Luxembourg tax resident who has been a Luxembourg tax resident for fifteen years at least and who sells shares of a Luxembourg company in which he has significant ownership within five years of transferring his tax residency outside of Luxembourg remains taxable in Luxembourg on the capital gains realized in the sale.
However, these safeguards provisions can only be invoked by the Luxembourg tax administration if they do not clash with the provisions of double taxation agreements applicable to the situation.
1 - article 100 of the Tax Law
2 - article 156.8 of the Tax Law
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