Learn › Tax in Luxembourg

In short: Luxembourg has no flat tax on most investment income. Half of qualifying dividends is exempt; the rest is taxed at progressive rates (top effective rate around 45.78%). Interest from a Luxembourg paying agent is taxed at a flat, final 20% (RELIBI) — neither creditable nor refundable. Capital gains on securities held more than six months are tax-exempt, provided the holding is not substantial (i.e. 10% or less; a stake above 10% held at any point in the prior five years loses the exemption). If the holding is substantial (>10%), a gain after six months is still taxable, but at half the taxpayer's average tax rate rather than the full progressive rate. For accumulating funds and ETFs there is no deemed annual tax: tax only arises on sale — which is usually exempt after six months. As of 2026; rules can change.

Capital Gains & Investment Taxation in Luxembourg (2026)

Kontoo editorial team · Updated 06/25/2026 · 7 min read

Luxembourg treats investment income quite differently from many of its neighbours. Instead of a single flat tax, most income flows into the progressive income tax schedule, with two important exceptions. Hold a security for more than six months and the gain is often tax-free, and ETF investors face no annual deemed tax. This calm, plain-language overview sets out the rules for the 2026 tax year.

Separate your income by type: dividends, interest and capital gains are each taxed differently.
On disposals, check the six-month holding period — beyond it, gains on non-substantial holdings are exempt.
Use your allowances: EUR 1,500 on investment income plus the EUR 500 limit on capital gains.
For foreign interest, weigh the option to opt into the 20% RELIBI regime instead of progressive rates.

What matters

The core idea. For private individuals managing their own assets, Luxembourg has no separate flat tax on most investment income. It forms part of total income and is taxed progressively — the 2026 schedule runs from 0% up to a top marginal bracket of 42%; with the 7%/9% solidarity surcharge this gives an effective top rate of about 45.78%. A 1.4% long-term care (dependency) contribution applies on top. Two important exceptions break the progression: the flat 20% on domestic interest and the half-rate treatment of certain gains. Dividends. Half of qualifying dividends is exempt (the 50% exemption) where they come from a fully-taxable resident company, an EU parent-directive company, or a company resident in a treaty state. The other half is taxed at progressive rates. Luxembourg-source dividends carry a 15% withholding tax, which for residents is creditable against the final tax bill — and refundable if it exceeds the tax due, so it is not a final tax. Foreign withholding tax is creditable up to the treaty limit; any non-creditable excess can be deducted as an income-related expense. Interest (RELIBI). Interest paid by a Luxembourg paying agent to a resident individual is subject to a final 20% withholding tax. It is fully discharged — you do not report it again. Up to EUR 250 per person, per paying agent, is exempt. Foreign interest that was not withheld at source can be brought into the 20% regime by self-assessment instead of being taxed progressively. New for 2026: a RELIBI exemption (uncapped) for qualifying euro-denominated sovereign bonds (3-year maturity, top-rated state, subscribed 15 January to 15 February 2026). Capital gains. Gains on securities depend on the holding period. Held six months or less, they are speculative and fully taxable at progressive rates — exempt only if total speculative gains in the year stay below EUR 500. Held more than six months, gains are tax-exempt, provided the holding is not substantial (10% or less). If the holding is substantial (>10%), a gain after six months is still taxable, but at half the taxpayer's average tax rate rather than the full progressive rate. This makes "buy and hold for at least six months" the tax-free default for ordinary retail investors. Funds and ETFs. Here Luxembourg is notably investor-friendly: no deemed annual tax like Germany's Vorabpauschale, and no reporting-fund status as in the UK or Ireland. Accumulating funds produce no taxable event until you sell — and that sale is usually exempt after six months. Distributions are taxed as investment income; the 50% exemption generally does not apply to SICAV/UCI distributions because the fund itself is not a fully-taxable company.

ExampleExample: Anna (taxed individually) receives EUR 800 in dividends from a Luxembourg equity fund and EUR 1,000 of interest from her bank in 2026. The interest is subject to 20% RELIBI = EUR 200, final and done. The dividend is taxed progressively (a fund distribution, so no 50% exemption — but it is still below her EUR 1,500 investment-income allowance, so no tax is due). If Anna also sells an ETF at a EUR 4,000 gain after holding it two years (holding far below 10%), that capital gain is fully tax-exempt — regardless of the amount.

For long-term savings plans it pays to think about compounding: because accumulating ETFs in Luxembourg only matter for tax when you sell, your full capital keeps working undiminished. Try it out with our compound-interest calculator.

In depth

Substantial holdings: the exception to tax-free gains

The six-month exemption only applies if you do not hold a substantial participation. Substantial means more than 10% of a company's capital, held — directly or indirectly by the household — at any time in the five years before disposal. Such long-term gains are taxed as extraordinary income at half the average global rate, so a maximum of roughly 22.89% (depending on how the surcharge is applied, some sources cite around 21.4%–21.8%). A reduced allowance of EUR 50,000 over ten years applies (EUR 100,000 for jointly-taxed couples), reduced by allowances already used. For ordinary retail investors with diversified holdings, this threshold is virtually never an issue.

Why the 50% exemption usually doesn't apply to funds

The half-rate dividend treatment depends on the paying company being fully taxable. But Luxembourg investment vehicles (UCIs) are exempt from corporate income tax and pay only the subscription tax (taxe d'abonnement) — generally 0.05% of net assets, 0.01% for money-market funds and certain classes. Because of this, the 50% exemption generally does not apply to SICAV/UCI distributions; they are fully taxable at progressive rates, reduced only by the general allowance. Whether the exemption applies in a given case depends on the fund's legal form and the nature of the underlying income, so confirm per product.

Allowances and wrappers at a glance

In 2026 several allowances reduce the burden: EUR 1,500 per taxpayer (EUR 3,000 jointly) on progressively-taxed investment income — RELIBI interest does not benefit. There is also a lump-sum expense deduction of EUR 25 (EUR 50 for couples), the EUR 250 per-paying-agent limit on interest, and the EUR 500 limit on capital gains. There is no ISA- or PEA-style tax-free wrapper. Private pension savings (Art. 111bis) allow deducting contributions up to EUR 3,200 a year; payouts are taxed favourably later (for example, a half rate on lump sums). Home-savings (épargne-logement) plans are exempt from RELIBI and deductible within limits.

Checklist

Income separated into dividends, interest and capital gains
Six-month holding period and 10% substantial-holding test checked
EUR 1,500 allowance (EUR 3,000 if jointly taxed) applied
Option to opt foreign interest into the 20% RELIBI regime considered

Common myths

Myth: I always pay tax on share and fund gains in Luxembourg.

Reality: No. For non-substantial holdings held more than six months, capital gains are exempt — the typical case for ETF savers.

Myth: Accumulating ETFs are taxed annually like in Germany.

Reality: No. Luxembourg has no deemed annual tax (no Vorabpauschale). Tax arises only on sale — which is usually exempt after six months.

Sources

Frequently asked questions

Are ETF gains tax-free in Luxembourg?

For private investors, usually yes. Hold fund or ETF units for more than six months without a substantial holding (over 10%) and the capital gain is exempt. Accumulating ETFs also face no annual deemed tax, so tax only arises on sale — which is then typically exempt anyway.

How is interest taxed in 2026?

Interest from a Luxembourg paying agent is subject to a 20% RELIBI withholding tax. It is final (libératoire): it discharges your income tax and is neither creditable nor refundable. Up to EUR 250 per person, per paying agent, per year is exempt.

Is there a tax-free investment account like an ISA or PEA?

No, Luxembourg has no general tax-free investment wrapper. The closest is private pension savings (prévoyance-vieillesse, Art. 111bis): contributions are deductible up to EUR 3,200 a year, and payouts are taxed favourably later.

All lessons · Glossary · Editorial · Kontoo does the math and explains – this is general education, not tax, legal or financial advice.

Your data stays with you. Full stop.

Kontoo collects, sees and stores none of your personal financial data – no account, no cloud, everything runs on your device. The free version is funded by ads (Google AdSense, only with your consent); with Kontoo Premium it is ad- and tracking-free.

No accountNo cloudData on-devicePremium: ad-free