Germany Luxembourg Double Taxation Treaty

Germany-Luxembourg double taxation agreement

Germany and Luxembourg signed their first double taxation agreement in 1959 and ever since the agreement was amended once in 2011.  The new treaty is based on the Organization for Economic Co-operation and Development model and respects all new international standards with respect to the exchange of tax information. The agreement also contains other clauses among which a real-estate companies clause and clauses clarifying the taxation of investment companies in Germany. The convention also contains specific provisions that Germany has previously introduced in its double taxation agreements with the United Kingdom and the Netherlands.

Withholding taxes according to the new Germany-Luxembourg double tax treaty

According to the new Germany-Luxembourg double tax agreement dividends will be taxed as it follows:

• - with 5% where the beneficial owner owns at least 10% of the share capital in a German or Luxembourg company,
• - with 15% in all other cases.

According to the new agreement, German real estate investment companies paying dividends will be taxed at a maximum rate of 15%. However, these types of companies will be partially exempt from the tax or will be allowed to deduct the distribution of dividends.

With respect to interest and royalties payments, interests will be taxed only in the country of the recipient, while royalties will be subject to a withholding tax of a maximum of 5% in Germany or Luxembourg depending on the recipient’s country of origin.

Investment companies according to the Germany-Luxembourg double tax treaty

The new double taxation agreement between Germany and Luxembourg contains provisions about the taxation of collective investment schemes. Luxembourg and German companies may benefit from reduced withholding taxes on dividends and exemptions on the taxation of interests.

Another provision in the Germany-Luxembourg double taxation agreement specifies that capital gains resulted from the alienation of shares in a company deriving over 50% of its value from immovable property may be taxed in the other state, meaning capital gains realized by Luxembourg residents selling shares in a German company, will be taxed at source in Germany.

For complete information about the new provisions of the double tax agreement with Luxembourg, you may contact our lawyers in Germany.