New Luxembourg-UK double tax treaty

On 19 July 2023, the Luxembourg Parliament voted to approve the draft law ratifying the new double tax treaty between Luxembourg and the United Kingdom (“the DTT”). The DTT, which the UK had previously ratified on 7 June 2022, should in general take effect from 1 January 2024 onwards.

While this version of the DTT includes new provisions, such as new real estate taxation clauses and withholding tax updates, the DTT’s Protocol extends treaty benefits to certain CIVs.

According to the Protocol, CIVs established and treated as body corporates for Luxembourg tax purposes, such as SAs, S.à. r.l.s or SCAs, which derive income from the UK, will be considered as Luxembourg tax residents for the DTT’s purposes and as the income’s beneficial owners, provided at least 75% of the CIV’s beneficial interests are owned by “equivalent beneficiaries”. Therefore, this body corporate concept includes Luxembourg UCITS, Part II funds, SIFs, RAIFs, pension savings associations (ASSEPs), pension savings companies with variable capital (SEPCAVs) and pension funds under the Commissariat aux Assurances’ supervision.

Equivalent beneficiaries are Luxembourg residents, as well as residents of other jurisdictions with which the UK has a treaty for effective and comprehensive information exchange and a tax rate at least as low as the DTT’s rate. UCITS are treated as Luxembourg residents and the beneficial owners of all income received, regardless of their ownership by “equivalent beneficiaries”.

Notably, this change could allow certain Luxembourg private debt funds to benefit from the DTT’s withholding tax exemption on interest payments derived from UK borrowers.