The Luxembourg Parliament has ratified the new Double Tax Convention with France which means that the treaty will come into force on 1 January 2020.
Under the agreed convention, Luxembourg will keep its full taxation rights on the salaried income in cases where a French-resident individual working for a Luxembourg employer exercises his/her functions in another State (France or a third State) for a period not exceeding 29 days in total per year.
Contrary to the provisions of the double tax treaties with Belgium or Germany, French-resident individuals will not be exempt in France on their Luxembourg salaried income, but subject to tax there with a tax credit.
This ratification is a new milestone in Luxembourg’s strategy to expand its Double Tax Convention network and adapt it to the new tax landscape led by the BEPS initiative"
"This ratification is a new milestone in Luxembourg's strategy to expand its Double Tax Convention network and adapt it to the new tax landscape led by the BEPS initiative," KPMG Luxembourg said.
"Most of the new provisions above-listed will require further practical clarifications from the French and Luxembourg authorities," KPMG added.
The new Double Tax Convention provides for a full exemption from withholding tax (‘WHT') on dividends, in cases where the recipient is a company and has held a minimum 5% interest in the capital of the company paying the dividends over a period of 365 days.
Dividends from shareholdings of at least 25% in French companies will no longer be tax-exempt in Luxembourg under the treaty, but they will benefit from a tax credit. That means that, in the future, dividends from shareholdings in French companies may only be exempt in Luxembourg if the right conditions are met for the Luxembourg domestic participation exemption regime.
The provisions of the new Double Tax Convention should apply as from 1 January 2020 provided both France and Luxembourg have exchanged their instrument of ratification by 31 December 2019.