Depreciation useful lives in Luxembourg: tax rules

Depreciation useful lives in Luxembourg: how are they set?

Depreciation useful lives in Luxembourg are set by no legal table: the business determines each fixed asset's usual useful life having regard to the type of asset and the conditions in which it is used, states it as a number of years, and follows the practice of its sector. Guichet.lu cites an industrial building over twenty years, office furniture over 10 years, a vehicle over 4 years.

That absence of a published table is the first thing to grasp, because it moves the burden of justification. The Luxembourg Inland Revenue does not publish a binding schedule of useful lives: it defines the method. Depreciable fixed assets are those that lose value through the passage of time or through use, and the usual useful life is determined having regard to the type of asset concerned and the conditions in which it is used. The useful life is therefore carried by the company's file, not by an administrative table.

The consequence runs against what many directors expect. A short useful life is not the prudent option: it is the exposed one, since it has to be justified by the real conditions of use of the asset. A commercial van covering 60,000 kilometres a year is not depreciated over the same period as a management car, and it is the documented use that makes the difference, not the chart of accounts line.

Land escapes this logic entirely. Non-depreciable fixed assets include in particular land and participations: land does not lose value through use, its value must therefore be excluded from the depreciable base, and splitting land from buildings on a property bought as a whole becomes a file point in its own right. Preparing the Luxembourg balance sheet often starts with that split, which no notarial deed provides on its own.

One final reading caution: the rates of 1.5 %, 2 % and 3 % by age of building, easily found online, do not apply to a company's assets. They belong to the regime for a building forming part of the taxpayer's private estate and let out, where the Luxembourg Inland Revenue applies 1.5 % where completion goes back less than 30 years, 2 % between 30 and 60 years inclusive and 3 % beyond, raised to 2 %, 2.5 % and 4 % where heavier wear is duly justified. Carrying those rates across to an operating building is a mistake of regime, not an approximation.

How is linear depreciation of a fixed asset calculated?

Linear depreciation in Luxembourg is calculated on the acquisition price or cost, reduced where applicable by the estimated recovery value, taking an equal amount per unit of the usual useful life remaining to run at the start of the operating period.

The formula looks unremarkable; it is its last part that matters. The base is not frozen at the start of the plan: it is read at the opening of the period against the remaining net book value and against the useful life still to run. Revising a useful life during the asset's life is therefore not caught up retroactively, it feeds through to the remaining annual charges.

For the first year, the official sources allow a simplification we rarely see applied correctly: depreciation may be computed from the beginning of the period of acquisition where the asset is bought during the first half-year, and the annual charge is halved where the acquisition falls in the second half-year. Nothing in that scheme calls for a month-by-month calculation on every investment invoice.

Three items belong in the file, and they are the three an audit asks for: the acquisition invoice or the cost computation, the useful life retained together with its reasoning, and the date the asset was brought into service. The most frequent anomaly in the depreciation schedules we take over is neither the rate nor the method, it is the date: an asset invoiced in December and brought into service in March of the following year enters the plan on two different dates depending on which document you read.

When is declining-balance depreciation available in Luxembourg?

Declining-balance depreciation in Luxembourg is available where the owner of a tangible fixed asset other than a building is also the user of that asset. It is obtained by applying a fixed rate to the remaining book value, and that rate may exceed neither three times the applicable linear rate nor 30 %.

Two exclusions take more assets out of the calculation than is generally assumed. Buildings cannot be depreciated on a declining-balance basis, whatever their use. And the requirement that owner and user be the same person rules out assets given on lease: a company buying an asset in order to let it cannot apply declining-balance depreciation to it, even where the asset is eligible by nature.

A reinforced regime exists for one precise case. For plant and equipment used exclusively for scientific or technical research operations, the declining rate may exceed neither four times the linear rate nor 40 %. The word "exclusively" is not decorative: mixed-use equipment shared between production and research does not fall under that reinforced cap.

The double cap produces a counter-intuitive result worth stating once and for all: beyond a useful life of 10 years, three times the linear rate stays below 30 %, so the triple applies; below that, the 30 % cap bites. For a vehicle depreciated over 4 years, three times the linear rate would reach 75 %: the declining rate retained will be 30 %.

Which assets can be written off in full in the first year?

Two regimes allow a fixed asset to be written off in Luxembourg far faster than its usual useful life, the anticipated depreciation of article 34 and the special depreciation of article 32bis of the income tax law. The anticipated depreciation of article 34 of the income tax law covers depreciable assets whose usual useful life does not exceed one year, together with those whose owner is also the user and whose acquisition price or cost does not exceed the threshold of EUR 870 per asset: they may be written off in full against the period of acquisition or construction.

The threshold of EUR 870 is assessed per asset, and that is the detail which settles most hesitations. A batch of twenty chairs invoiced in one go does not become a single fixed asset because of the invoice; conversely, an assembly whose components do not function in isolation is not broken into units in order to slip under the cap. One explicit limit completes the regime: it does not apply to fixed assets acquired on the transfer of a business or of an autonomous part of a business.

The second regime is the special depreciation of article 32bis, which may not exceed 80 % of the acquisition price or cost of the asset. It covers investments defined exhaustively: assets intended to prevent, reduce or eliminate waste water discharges, air or soil pollution and harmful emissions of noise, odour, vibration or radiation, those acquired or constructed in order to achieve energy savings in the business, and those intended for the integration of disabled persons into working life. Circular L.I.R. no. 32bis/1 of 6 October 2021 sets out how it applies.

We regularly see anticipated depreciation under-used, for a reason that has nothing to do with tax: small equipment is capitalised asset by asset because the accounting software was configured that way when the file was opened, and nobody revisits the configuration. The cost is not the tax, it is the depreciation schedule: several hundred low-value lines to track for years, which a full deduction on acquisition would have avoided.

Can the accounting and tax useful lives diverge?

The accounting and tax useful lives do not diverge freely in Luxembourg: article 40 of the income tax law requires the useful life taken into account in the tax balance sheet to tally with the one retained in the commercial balance sheet. Only two exceptions exist, a commercial period that is manifestly incorrect, or article 22, paragraph 1 standing in the way.

This is the rule tying the tax balance sheet to the commercial balance sheet, and its reach goes beyond depreciation: where the rules governing valuation for tax purposes do not require valuation at a determined amount, the values retained in the tax balance sheet must be those of the commercial balance sheet or come as close to them as possible. Two parallel depreciation plans, one for the annual accounts and one for the return, are therefore not a management choice: they must be justified text in hand.

On the accounting side the duty sits in article 55 of the amended law of 19 December 2002: the acquisition price or production cost of fixed assets with limited useful lives must be reduced by value adjustments calculated to write off the value of those assets systematically over their useful life. Intangibles are depreciated over their useful life, and in the exceptional case where the useful life of goodwill and of development costs cannot be reliably estimated, those items are written off over a maximum period not exceeding ten years.

A little-known sanction closes the system: depreciation which is mandatory and which the operator knowingly omitted to take cannot be recovered later. In other words, a company that fails to depreciate in order to show a result does not defer the charge, it loses it. Configuration and consistency across the two plans are part of what we check when taking over a file, alongside the other options of the LuxGAAP framework.

Can a loss-making company defer its depreciation?

A loss-making company can defer its depreciation in Luxembourg by election and asset by asset, under the deferred depreciation of article 32, paragraph 1a of the income tax law. The taxpayer may then decline to deduct a period's charge, or deduct only part of it, the amount allowed but not yet deducted becoming deductible in one of the following periods.

The mechanics of the request are described by circular L.I.R. no. 32/1 of 15 May 2018, and they are strictly declarative. The election is made by a request introduced as part of the income tax return, by ticking the box provided for that purpose on the return form, and by stating at the same time, for the tax year concerned, the amount of depreciation not deducted together with the amount of depreciation deferred from an earlier year and deducted in respect of the year in question.

The choice is made asset by asset: article 32, paragraph 1a may be applied to certain depreciable assets while the others remain subject to article 32, paragraph 1. That granularity is precisely what makes the election useful, since it preserves the depreciation of a high-charge asset without freezing the whole plan.

The trade-off runs against the tax loss carry-forward regime, and it deserves to be settled before the closing, not when the return is signed. The timing we observe in practice is the real issue: an election ticked on the return cannot be repaired once the assessment has issued, and every year we see files where depreciation was simply omitted instead of deferred, which is not the same thing in law.

The depreciation errors we correct most often

The depreciation errors we correct most often in Luxembourg accounting files form a stable set from one handover to the next, and none of them turns on a subtlety of calculation: they all bear on the base, the regime or the date.

Land depreciated together with the building, for want of splitting the acquisition price: the error is mechanical, it repeats every period, and it is immediately visible to an audit since land sits among the non-depreciable fixed assets.

Declining balance applied to a building, or to an asset given on lease: both cases are excluded by the text, and the correction covers every period not yet time-barred.

A tax useful life aligned on foreign practice rather than on the commercial balance sheet period, without that commercial period being manifestly incorrect: article 40 is what is at stake, and the divergence cannot be defended by another country's custom.

Depreciation omitted by a loss-making company without electing for deferred depreciation: the charge is not carried forward, it is lost where the omission is deliberate and the depreciation mandatory.

And the depreciation schedule that no longer reconciles with the general ledger, because disposals and scrappings were never taken out of the plan. Reworking a history of that kind means going back to the investment invoices and the in-service dates, asset by asset, before any correcting entry. It is a documentary exercise; our engagement terms are set out on the pricing page.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). Sources were verified on 1 October 2026, the date on which every rate, threshold and legal reference cited here was cross-checked against an official source.

The sources consulted are as follows.

The amended law of 4 December 1967 on income tax, in its coordinated text in force on 1 January 2026 published by the Luxembourg Inland Revenue, for the valuation of depreciable fixed assets at acquisition price or cost reduced by the depreciation computed under articles 29 to 34, for the linear depreciation of article 32 and its equal amount per unit of useful life still to run, for the double cap on declining balance in article 32 (three times the linear rate and 30 %, four times and 40 % for plant and equipment used exclusively for scientific or technical research operations), for the requirement that owner and user be the same person and the exclusion of buildings.

The same coordinated text, for the depreciation for diminution of substance in article 33, for the anticipated depreciation of article 34 and its threshold of EUR 870 per asset, and for the tie-in rule of article 40. Circulars of the director of contributions L.I.R. no. 32/1 of 15 May 2018, for the deferred depreciation of article 32, paragraph 1a, the request by ticked box on the return and the asset-by-asset election, and L.I.R. no. 32bis/1 of 6 October 2021, for the special depreciation capped at 80 % of acquisition price or cost.

The Luxembourg Inland Revenue A to Z pages on depreciation, on depreciable fixed assets, on non-depreciable fixed assets and on a building forming part of the taxpayer's private estate and let out, for the definition of the usual useful life stated as a number of years, for the exclusion of land and participations from the depreciable base, and for the rates of 1.5 %, 2 % and 3 % by age of a let building held in a private estate, raised to 2 %, 2.5 % and 4 % where heavier wear is justified.

The guichet.lu pages on the operating result of a sole trader or transparent partnership and on the acquisition or lease of fixed assets, for the useful lives cited as examples (industrial building over twenty years, office furniture over 10 years, vehicle over 4 years) and for the first-year simplification based on the half-year of acquisition. The amended law of 19 December 2002 on the trade and companies register and on the accounting and annual accounts of undertakings, for the systematic depreciation of article 55 and for the ten-year maximum applying to goodwill and development costs whose useful life cannot be reliably estimated.

Three points could not be verified in their primary source and are therefore not asserted here. The full text of the coordinated law and of the two circulars: impotsdirects.public.lu, legilux.public.lu and guichet.public.lu are blocked by the network proxy of our editorial environment, and these documents were read through indexed extracts via a search restricted to official domains; the citations above reproduce those extracts word for word, with no extrapolation. The conditions for switching from declining balance to linear depreciation during a plan, and the reverse: the question comes up often in practice, we could not read the applicable provision and we therefore take no position.

And the exhaustive list of usual useful lives by sector, which does not exist as a published schedule: the three periods cited are those given as examples by guichet.lu, not a binding reference. These points can be checked in the coordinated text of the income tax law and in the circulars on impotsdirects.public.lu, and with the competent tax office for a contested useful life.

This article states the law as it stands at the date of publication and is not personalised advice: the period retained depends on the type of asset, on the real conditions in which it is used and on the documentation establishing them. Report an error to contact@financialservices.lu: corrections are dated in the article.