Municipal business tax in Luxembourg: rates and calculation

What is municipal business tax in Luxembourg?

Municipal business tax in Luxembourg is a tax on the profit of commercial undertakings only, levied for the benefit of the municipality where the business is established. It is computed on its own base: trading profit, reduced by an allowance, is multiplied by a statutory assessment rate of 3%, then by the rate set by the municipality.

Its purpose is local. Municipal business tax helps municipalities finance their charges, and more precisely the additional charges caused by the businesses established on their territory: providing industrial zones, parking spaces, measures intended to preserve the quality of the natural environment. It is assessed and collected by the tax administration on behalf of the municipalities, on the basis of the taxpayer's return.

It is therefore not a surcharge on corporate income tax, but a separate tax, computed on a separate base and collected on a separate advance calendar. For a capital company established in Luxembourg City it represents 6.75% of trading profit, within an aggregate burden of 23.87% whose breakdown we set out in our article on the corporate income tax rate.

How municipal business tax is computed: allowance, 3%, municipal rate

Municipal business tax is computed in Luxembourg in three steps: trading profit is first reduced by an allowance, the balance is multiplied by the statutory assessment rate of 3%, and the resulting assessment base is finally multiplied by the municipal rate.

The allowance depends on the taxpayer. It is EUR 17,500 for taxpayers liable to corporate income tax, that is, for capital companies, and EUR 40,000 for other taxpayers, sole traders and partnerships. That gap of EUR 22,500 of base is worth roughly EUR 1,519 of tax at the Luxembourg City rate: not decisive when choosing a legal form, but a line that first-year forecasts routinely fail to differentiate.

The assessment rate itself does not vary: it is fixed by law at 3% throughout the country. The only genuinely local variable is the municipal rate, applied last, which multiplies the assessment base. The same profit therefore bears a different tax depending on the municipality of the place of business, with no change whatsoever in the tax base.

The municipal rate ranges from 200% to 400% across municipalities

The municipal rate for business tax is set by each Luxembourg municipality according to its financial needs, and generally falls between 200% and 400%. It is the only component of the computation that depends on the address of the place of business, and it can double the bill at identical profit.

The rates applicable to tax year 2026 were published in Mémorial A553 of 11 December 2025, and the tax administration announced them in its news item of 16 December 2025, which points to a table of municipal rates from 2016 to 2026 published in its "A to Z" section. We were unable to read the municipality-by-municipality list at the verification date: a reader who needs the exact rate of their municipality should take it from that table or from the Mémorial, not from a summary article.

The only rate we reproduce here is that of Luxembourg City, because the tax administration publishes it in another form: 6.75% of trading profit, which corresponds to a municipal rate of 225% applied to the 3% assessment rate. Applying that 6.75% to a company established outside Luxembourg City is the modelling error we meet most often in the forecasts handed to us when we take over a file.

The rate follows the municipality of the actual place of business, not the most convenient postal address. A transfer of seat motivated solely by the difference in municipal rates presupposes that the activity is genuinely carried on from the new municipality: that is a substance question, not an address formality.

Which businesses pay municipal business tax?

Municipal business tax applies in Luxembourg to commercial undertakings located on its territory: sole traders who realise a trading profit, partnerships that realise one, capital companies, and Luxembourg permanent establishments of foreign undertakings for their Luxembourg activities only.

Capital companies are opaque for tax purposes: they are taxpayers in their own right and bear both corporate income tax and municipal business tax. A SARL, an SA or a SOPARFI therefore falls within the scope by reason of its form, irrespective of the nature of its activity, whereas a sole trader falls within it only to the extent of an actual trading profit.

Not every structure is caught. The family wealth management company is exempt from income tax, business tax and net wealth tax, unless it receives, in a given financial year, at least 5% of the total amount of its dividends from holdings in non-resident unlisted companies that are not subject to a tax comparable to corporate income tax. That is a conditional exemption to be monitored every year, not a status acquired once and for all.

The municipal business tax base is not the corporate income tax base

The base of municipal business tax is adjusted trading profit, which resembles the taxable income used for corporate income tax without being identical to it: the real nature of business tax requires its own additions and deductions. Reasoning on a single figure for both taxes is the most frequent source of gap between the forecast and the assessment notice.

The heaviest deduction concerns participation dividends. Trading profit is reduced by dividends allocated by reason of a holding in a resident capital company, or in a fully taxable non-resident capital company, where the holding represents at least 10% of the capital of the distributing company and where those items are included in trading profit. Dividends exempt under the parent-subsidiary regime likewise escape municipal business tax.

Earlier trading losses are also deducted, provided they were established on the basis of regular accounting records kept during the year in which the loss arose. The oldest losses are offset first, and there is no carry-back in Luxembourg: a loss-making year gives no right to a refund of earlier years' tax.

Two rules pulling in opposite directions are worth remembering. First, the 7% employment fund surcharge applies to corporate income tax, not to business tax: in the breakdown published by the tax administration, the employment fund line and the municipal business tax line are separate. Second, municipal business tax is itself non-deductible: together with corporate income tax and net wealth tax, it sits among the non-deductible operating expenses of collective entities.

Several establishments: allocating the tax between municipalities

A business operating establishments in several Luxembourg municipalities does not pay its business tax to just one of them: the assessment base is allocated between the municipalities concerned, principally in proportion to the wages paid in each establishment. The key is declared on form 115, an annex to the return.

Income follows the permanent establishment from which the activity generating it emanates; the fact that the item is subsequently booked in another permanent establishment is irrelevant. Where part of the business is exempt from business tax, the income realised in that part is eliminated, as are the wages paid to employees working exclusively or mainly in it.

Two technical details regularly escape attention. A notional annual salary of EUR 2,900 must be taken into account for the operator, or for the partners of a collective commercial undertaking working in the business: the key is therefore never drawn purely from the payroll ledger. And where the final key differs from the one indicated at the start of the year, it is declared on the annex provided for that purpose.

We regularly see this allocation handled at the end of an engagement, on the fly, from an unadjusted annual payroll statement: employees of an exempt activity are still in it, the operator's notional salary is missing, and the split between municipalities is wrong in both directions. Rebuilding the key takes one to two hours of work on payroll data, billed at the hourly rate published in our pricing grid, and is best prepared during the year rather than after the close.

Filing, advances and deadlines for municipal business tax

Municipal business tax is declared in Luxembourg in the same return as corporate income tax and net wealth tax: form 500 carries all three taxes. It must be filed by 31 December of the year following the tax year.

Since tax year 2017, filing through MyGuichet.lu is mandatory for the resident commercial entities referred to in article 159, paragraph 1, A.-1 of the amended law of 4 December 1967 on income tax, that is, for capital companies. Since tax year 2024 the procedure has been open to other collective entities, which may file online or use the PDF form, with no change to the deadlines. The full route is described on our page on the corporate tax return.

Advances follow their own calendar. Municipal business tax advances, like net wealth tax advances, fall due on 10 February, 10 May, 10 August and 10 November of the tax year, whereas corporate income tax advances fall on 10 March, 10 June, 10 September and 10 December. A company that provisions four instalments instead of eight has the wrong cash-flow calendar from its first full year.

Sources and verification

Written for Financial Services Luxembourg and reviewed before publication by Mickaël LOC, licensed accountant (authorisation 10077274). The rates, thresholds, dates and legal references in this article were verified on 7 September 2026 against the official sources listed below.

Sources consulted: the tax administration page on the computation of municipal business tax, for the statutory 3% assessment rate, the EUR 17,500 and EUR 40,000 allowances, the 200% to 400% range of municipal rates and the deduction of dividends from holdings of at least 10%; the page on the aggregate tax burden of collective entities, for the 6.75% Luxembourg City rate and the 23.87% breakdown; the page on loss carry-forward, for the regular accounting condition, the order of offset and the absence of carry-back; the page on non-deductible operating expenses, for the non-deductibility of business tax; the pages on tax advances and the tax calendar, for the 10 February, 10 May, 10 August and 10 November deadlines; the page on the family wealth management company, for the exemption and its 5% condition; the tax administration's news item of 16 December 2025, for the publication of the tax year 2026 multipliers and the table of municipal rates from 2016 to 2026; form 115, guidance for allocating business tax, for the wage-based key, the attachment of income to the permanent establishment and the EUR 2,900 notional annual salary; the tax administration page on the return for collective entities, for form 500 covering all three taxes, mandatory MyGuichet.lu filing since tax year 2017 and its extension to other entities since 2024. On guichet.lu, the page on municipal business tax, for the scope of taxpayers, the municipal purpose of the tax and its assessment by the tax administration on behalf of the municipalities, together with the page on the parent-subsidiary regime. Mémorial A553 of 11 December 2025, on legilux.public.lu, for the publication of the municipal regulations and the tax year 2026 rates.

Two points could not be verified at that date. The municipality-by-municipality list of rates applicable to 2026 could not be read: the publishing act exists, Mémorial A553 of 11 December 2025, but its content was not accessible from our drafting environment. The municipal rate of 225% attributed here to Luxembourg City was not read as such either: it is derived from the 6.75% of trading profit published by the tax administration, divided by the 3% assessment rate. A reader who needs the rate of their own municipality should check it in the table of municipal rates published by the tax administration, or in the Mémorial cited above, before relying on any computation.

This article sets out the law as it stands at the publication date. Rates, thresholds and calendars change, and any decision binding your structure should be verified as at the date you rely on it. Report an error to contact@financialservices.lu: the correction is dated in the article.