Luxembourg: EC launches action over dividend tax discrimination
The EU Commission may issue a reasoned opinion as the next procedural step.
The European Commission (EC) on December 11, 2025, sent a letter of formal notice to Luxembourg, granting the government two months to respond and address the allegedly discriminatory withholding tax regime.
The EC stated that the policy “results in a discrimination of public investments” and breaches the free movement of capital. If Luxembourg fails to remedy the issue within the two‑month deadline, the EC may issue a reasoned opinion as the next procedural step, which could ultimately lead to a referral to the European Union Court of Justice.
Background
Under Luxembourg law, dividends distributed by companies established in Luxembourg to the State of Luxembourg and its public entities are exempt from the 15% withholding tax, whereas dividends distributed to public entities of other member states of the European Union (EU) and the European Economic Area (EEA) are subject to that 15% withholding tax. The EU Commission regards this distinction as discriminatory toward public investments from other EU/EEA Member States and as contrary to the principle of the Free Movement of Capital, as laid down in Article 63 of the Treaty on the Functioning of the European Union and Article 40 of the EEA agreement.
Read a December 2025 report prepared by the KPMG member firm in Luxembourg