November 01, 2008 | By Keith Martin in Washington, DC

Luxembourg is expected to eliminate a capital duty that it collects currently on capital contributions to Luxembourg companies, effective on January 1, 2009.

The country is also expected to stop collecting withholding taxes on dividends paid by Luxembourg companies to foreign shareholders in countries that have tax treaties with Luxembourg. Luxembourg has an extensive treaty network. The two changes should make Luxembourg more attractive as a location for offshore holding companies.

To avoid withholding taxes, the shareholder must have held its shares for at least 12 months, either own at least 10% of the Luxembourg company or have paid at least €1.2 million for its shares, and be subject to corporate income taxes in its home country that are comparable to corporate income taxes in Luxembourg.

Keith Martin