This guide is for informational purposes only. Reach out to your tax advisor for any consulting or advice.
From a Luxembourg tax perspective, generally speaking, we need to consider the following income categories from individual investment in a fund:
Interest (as investment income); and/or
Dividends (as investment income); and/or
Capital gains (as miscellaneous income).
Interest and Dividends
Interest and Dividend income is taxed at the progressive tax rates (up to 45.78%, excluding the 1.4% dependency contribution).
A withholding tax (WHT) could be applied in certain circumstances. If any WHT is levied by the distributing entity, it should be creditable against your personal income tax liability in your tax return.
A gain in an investment fund is considered short-term if the period between acquisition and sale is no more than 6 months.
Short-term speculative gains aren't taxable if the total of taxable gains derived during the year is lower than EUR 500, otherwise such gains are taxed at progressive income tax rates.
A gain in an investment fund is considered long-term if the period between acquisition and sale is greater than 6 months.
Long-term capital gains are taxed at half the individual’s global tax rate. However, the income from the sale of certain assets (such as shares kept longer than 6 months) is tax exempt, provided the taxpayer doesn't hold – directly or indirectly – a significant share in the company. A significant share is more than 10% of the capital at any moment during the 5 years preceding the sale.
The first 1,500 EUR of investment income, including that from dividends and other investment sources, is exempt from individual income tax in Luxembourg. For couples filing a Luxembourg income tax return together, the first 3,000 EUR is exempt.
In the event the received dividend income or similar distribution is paid by a fully taxable business resident in a European Union Member state or a state that has concluded a tax treaty with Luxembourg, the Luxembourg individual's income tax will be levied on 50% of the gross amount of said dividend at progressive tax rates.
Generally, there is no difference between how interest held in the different fund types is taxed (for example, equity vs. fixed income vs. MMFs).
A sole trader, meaning an individual holding a business in their own name without any corporate vehicle or legal entity, is taxed as an individual.
In Luxembourg, there is no difference between an Irish or Luxembourg fund other than that the Irish fund potentially involves withholding tax. Any tax withheld would be creditable against Luxembourg tax.