New circular on interest rates for shareholders’ current accounts: key updates from the Luxembourg Tax Administration

New circular on interest rates for shareholders’ current accounts: key updates from the Luxembourg Tax Administration

On 29 January 2025, the Administration des contributions directes issued Circular L.I.R. n° 164/1, confirming the application of the arm’s length principle to shareholders’ overdrawn current accounts in entities subject to corporate income tax.

Key updates:
◻ For individual shareholders:
Significant changes replace the previous 5% safe harbour rate with a reference to market statistics published by the Banque centrale du Luxembourg, ensuring rates reflect actual market conditions.

◻ For corporate shareholders (related parties):
The main update is the explicit reference to Articles 56 and 56bis of the Income Tax Law, reinforcing the arm’s length principle for transactions between related entities (e.g., parent and subsidiary companies). Interest rates must consider factors such as currency risk, refinancing rates, and loan maturity.

This circular replaces the 1998 version and aligns Luxembourg’s practices more closely with international standards.

Access the full circular here
Need guidance on how these updates affect your operations? Contact our Head of Tax Mathieu Ledoux for tailored advice and compliance support.

New circular on interest rates for shareholders’ current accounts: key updates from the Luxembourg Tax Administration

On 29 January 2025, the Administration des contributions directes issued Circular L.I.R. n° 164/1, confirming the application of the arm’s length principle to shareholders’ overdrawn current accounts in entities subject to corporate income tax.

Key updates:
◻ For individual shareholders:
Significant changes replace the previous 5% safe harbour rate with a reference to market statistics published by the Banque centrale du Luxembourg, ensuring rates reflect actual market conditions.

◻ For corporate shareholders (related parties):
The main update is the explicit reference to Articles 56 and 56bis of the Income Tax Law, reinforcing the arm’s length principle for transactions between related entities (e.g., parent and subsidiary companies). Interest rates must consider factors such as currency risk, refinancing rates, and loan maturity.

This circular replaces the 1998 version and aligns Luxembourg’s practices more closely with international standards.

Access the full circular here
Need guidance on how these updates affect your operations? Contact our Head of Tax Mathieu Ledoux for tailored advice and compliance support.