Based on domestic law, a company is considered to be resident in Luxembourg if either its registered office or place of central administration is located in Luxembourg. The registered office is designated as such in the company’s articles of incorporation.
The place of central administration is generally understood to mean the place where the company is managed and controlled. While this term is not legally defined, the location of the company’s major establishment is determined by facts and circumstances, including the following:
- The place where meetings of the board of directors are held.
- The place where shareholders meetings are held.
- The place where the company’s officers make their decisions.
- The place where the company’s books and records are kept.
- The place where other, similar factors evidencing management control occur.
Permanent establishment (PE)
The provisions on PEs included in the tax treaties concluded by Luxembourg generally follow the wording of the Organisation for Economic Co-operation and Development (OECD) model.
Under Luxembourg domestic tax law, a similar PE concept exists but is defined in a broader way and is to be understood as every fixed piece of equipment or place that serves for the operation of an established business.
The existing provision defining the notion of PE in Luxembourg domestic law (Section 16 of the Luxembourg adaptation law) was amended by the law implementing European Union (EU) Anti-Tax Avoidance Directive 1 (ATAD 1) into Luxembourg domestic law and is applicable as of tax years starting on or from 1 January 2019.
This amendment is designed to resolve conflicts of interpretation on the existence of a PE resulting from the interaction between the provisions of domestic law and the provisions of the relevant double taxation treaty (DTT).
This provision provides that the definition of a PE is to be construed solely on the basis of the criteria mentioned by the DTT.
Under this paragraph, the Luxembourg tax authorities may request from the taxpayer a confirmation from the other contracting state, through any relevant document, that it effectively recognises the existence of a PE in its territory. In certain situations, the confirmation is to be given upfront and must be attached to the annual tax return.