Statutory rate without a valid treaty claim: 30%.
What sets the U.S.-Luxembourg treaty apart
The 1996 U.S.-Luxembourg treaty exempts interest and royalties at source and caps U.S. dividends at 5% and 15%. Its 0% dividend rate runs one way only, for dividends paid by Luxembourg companies to U.S. parents. For a U.S. payer the treaty's main concern is who is excluded: Luxembourg 1929 holding companies, investment companies under the 1988 law and companies with similar special tax treatment are not residents at all, and a strict limitation-on-benefits article screens everyone else.
Common payments at a glance
| Payment | What the U.S. payer does | Article |
|---|---|---|
| Interest to a Luxembourg lender or affiliate | No withholding. Profit-contingent interest: up to 15% | 12(1), 12(6) |
| Royalties, including film and recordings | No withholding | 13(1) |
| Dividend to a Luxembourg company holding directly 10% or more of the voting stock | 5% (the 0% rate applies only to Luxembourg-paid dividends) | 10(2)(a) |
| Dividend to anyone else, and RIC dividends | 15% | 10(2)(a)(ii), 10(6) |
| Payment to a 1929 holding company or similar special-regime company | No treaty: not a resident | 24(10) |
| Luxembourg contractor working in the U.S. | Exempt unless a fixed base is regularly available in the U.S. | 15 |
| Employee seconded to the U.S. | Exempt only if 183 days or fewer in any 12-month period, paid by a non-U.S. employer and not borne by a U.S. PE | 16(2) |
| Performer or athlete, including employees | Taxable if gross receipts for the year, including reimbursed expenses, exceed $10,000 | 18(1) |
| Visiting teacher or researcher | Exempt for 2 years; retroactively taxable if the stay runs longer | 21(2) |
| U.S. Social Security benefits | Taxable in the U.S.: withheld on | 19(1)(b) |
| Other income | Exempt from U.S. tax: taxable only in Luxembourg | 22(1) |
Assumes the payee is the beneficial owner, is resident under the treaty, meets its limitation-on-benefits article and gives a valid W-8BEN, W-8BEN-E or Form 8233. Article references are to the treaty as amended.
Rates on investment and other income
Treaty in effect generally from Jan. 1, 2001. Protocols in effect from: Jan. 1, 2009. IRS country code LU.
| Income | 1042-S code | Treaty rate | Article |
|---|---|---|---|
| Interest paid by U.S. obligors, general | 01 | 0% (exempt)gjj | 12(1) |
| Dividends paid by U.S. corporations, general | 06 | 15%w | 10(2) |
| Dividends qualifying for the direct dividend rate | 07 | 5%w | 10(2) |
| Royalties: industrial, commercial or scientific equipment | 10 | n/au | 13(1) |
| Royalties: know-how and other industrial royalties | 10 | 0% (exempt)ss | 13(1) |
| Royalties: patents | 10 | 0% (exempt)ss | 13(1) |
| Royalties: motion picture and television copyrights | 11 | 0% (exempt)ss | 13(1) |
| Royalties: copyrights (including software, unless the treaty says otherwise) | 12 | 0% (exempt)ss | 13(1) |
| Pensions and annuities | 15 | 0% (exempt) | 19(1)(a) |
| U.S. Social Security benefits (applies to 85% of the payment) | 15 | 30% | 19(1)(b) |
"n/a" means the payment type is not covered by the royalty article: equipment leasing is business profits (no withholding without a permanent establishment) or other income. Superscript letters are the IRS's own conditions, listed at the end of this page.
Pay for personal services performed in the United States
Each row is an exemption the treaty gives, with the limits the IRS lists. All conditions in a row must be met; if any is not, the pay is withheld on at 30% (contractors) or under the wage rules (employees). Services performed entirely outside the United States are foreign-source and need no treaty claim.
| Code | Purpose | Maximum presence in U.S. | Required employer or payer | Maximum amount | Article |
|---|---|---|---|---|---|
| 17 | Independent personal services7 | No limit | Any contractor | No limit | 15 |
| 18 | Dependent personal services121757 | 183 days | Any foreign resident | No limit | 16 |
| 42 | Public entertainment25 | No limit | Any U.S. or foreign resident | $10,000 p.a. | 18 |
| 19 | Teaching or research9 | 2 years | Any U.S. or foreign resident | No limit | 21(2) |
| 20 | Remittances or allowances1145 | 2 years | Any U.S. or foreign resident | No limit | 21(1) |
Reading the U.S.-Luxembourg treaty as a payer
Documents and dates
The convention was signed in Luxembourg on April 3, 1996, with an exchange of notes, replacing the 1962 treaty; the IRS tables give January 1, 2001 as the general effective date, with withholding applying to amounts paid from January 1 after entry into force. A protocol signed on May 20, 2009 replaced only the exchange of information article, adding access to bank and ownership information for tax years from 2009. It did not change any withholding rate.
Who is excluded
Luxembourg holding companies under the Act of July 31, 1929 and the Decree of December 17, 1938, and other companies that enjoy a similar special fiscal treatment, are not residents for this treaty (Art. 24(10)). The exchange of notes says that includes investment companies under the Act of March 30, 1988. A W-8BEN-E treaty claim from such a company cannot be relied on, whatever the form says. The notes also let a payer's country treat a company as not qualified unless it shows its share ownership, including bearer shares.
Residence and transparent entities
Partnerships, estates and trusts are residents only to the extent their income is taxed as a resident's income, in their own hands or their partners' or beneficiaries' (Art. 4(1)(b)). Article 3(1)(i) adds an unusual definition: where a company is treated as a partnership or otherwise not taxed as a company under the other country's law, the beneficial owners are the persons taxed on its income there. A company resident in both countries gets no benefits unless the competent authorities agree its residence (Art. 4(3)).
Limitation on benefits
Article 24 qualifies individuals, governments, companies at least 50% owned by qualified residents or U.S. citizens that also pass a 50% base erosion test, companies whose principal shares are substantially and regularly traded (at least 6% of average outstanding shares in the prior year), companies controlled by such listed companies that pass the base erosion test, and nonprofits with more than half their beneficiaries qualified. For a closely held company, trading on the Luxembourg exchange or NASDAQ does not count.
Income connected with an active business in Luxembourg qualifies, with a safe harbor where the asset, income and payroll ratios each reach 7.5% and average at least 10%. Derivative benefits need 95% ownership by seven or fewer EU or NAFTA residents whose own treaty gives a rate at least as low. A triangular rule caps dividends, interest and royalties at 15% where income runs through a third-country branch taxed at less than half the Luxembourg rate, and tracking stock held mostly by outsiders loses benefits on the income it tracks.
Dividends
U.S. dividends are 5% for a company holding directly at least 10% of the voting stock and 15% otherwise (Art. 10(2)(a)). The 0% rate in Article 10(2)(b), for a 25% holding kept two years, applies only to dividends paid by Luxembourg companies out of an active Luxembourg business. RIC dividends get 15%, never 5%. REIT dividends get no treaty reduction unless the owner is an individual holding less than 10% (Art. 10(6)). The treaty has no special dividend rate for pension funds. The U.S. branch profits tax is capped at 5%.
Interest and royalties
Interest is taxable only in Luxembourg (Art. 12(1)), except interest determined by reference to the profits of the issuer or an associated enterprise, which may be taxed at up to 15%, and REMIC excess inclusions, which get no relief (Art. 12(6)). Royalties are taxable only in Luxembourg (Art. 13(1)); the definition expressly includes cinematographic films and audio and video tapes and disks. Royalties arise where the property is used. Equipment rent is not in the royalty definition and falls under business profits or other income.
Services
Independent services are taxable in the U.S. only through a fixed base regularly available here (Art. 15). Construction projects become a permanent establishment after 12 months. Employees are exempt only if present 183 days or fewer in any 12-month period beginning or ending in the tax year, paid by a non-U.S. employer and not borne by a U.S. permanent establishment (Art. 16(2)). Directors' fees are taxable in the company's country for services rendered there (Art. 17). The $10,000 performer threshold applies notwithstanding the employment article, so it covers performers who are employees too; above it, the whole amount is taxable (Art. 18).
Pensions and Social Security
Private pensions and annuities are taxable only in the country of residence (Art. 19). Social Security and tier 1 Railroad Retirement are taxable only in the paying country (Art. 19(1)(b)), so U.S. Social Security paid to a Luxembourg resident is withheld on.
Teachers, students and other income
Students, apprentices and business trainees in full-time education or training are exempt on payments for maintenance, education or training; the text does not require the payments to come from abroad. Trainees and apprentices are limited to two years, and if the visit runs longer the whole period can be taxed. Teachers and researchers invited by a recognized educational institution are exempt for up to two years, also with retroactive loss if the stay exceeds two years, and only for research for the inviting institution (Art. 21). Other income is taxable only in Luxembourg (Art. 22).
Where payers get it wrong
- Applying the 0% dividend rate to U.S.-paid dividends. It applies only to dividends paid by Luxembourg companies. A U.S. payer's lowest rate is 5%.
- Accepting a claim from a 1929 holding company or 1988-law investment company. These are not residents under Article 24(10).
- Treating all interest as exempt. Profit-contingent interest can be taxed at up to 15%, and REMIC excess inclusions in full.
- Giving REIT dividends 15% when the owner is a company. Only individuals holding less than 10% get a treaty rate.
- Exempting a performer because he or she is an employee. The $10,000 test overrides the employment article.
Read from the treaty documents: Convention and exchange of notes of Apr. 3, 1996 (Senate Treaty Doc. 104-33); Protocol of May 20, 2009 and exchange of notes; Treasury Technical Explanation of the 2009 Protocol. Texts and technical explanations: United States income tax treaties, A to Z.
How the payee claims these rates
- Individuals claim a reduced rate on interest, dividends, royalties or pensions in Part II of Form W-8BEN: treaty country, article, rate and any conditions. Most claims need a U.S. TIN or a foreign TIN on the form.
- Entities claim in Part III of Form W-8BEN-E, which also asks which limitation-on-benefits test the entity meets (the Luxembourg treaty's LOB provision is Article 24).
- Pay for services performed in the United States by an individual is exempted on Form 8233, not the W-8BEN, one form per tax year and per payer.
- The payer reports the payment on Form 1042-S with the income code shown above and chapter 3 exemption code 04 (exempt or reduced withholding under a tax treaty). From 2026 an exemption code is required whenever less than 30% is withheld.
The rate in a table is the most the United States may withhold under the treaty, not an entitlement. The payee has to be a resident of Luxembourg under the treaty, the beneficial owner of the income, and (for entities) meet the limitation-on-benefits article, and the payer has to hold a valid certificate before the payment. The IRS tables are a summary: check the article itself when the amount is material.
Questions payers ask
What is the U.S. withholding rate on dividends paid to a resident of Luxembourg?
15% on dividends generally and 5% on dividends qualifying for the direct dividend rate, under Article 10(2), if the shareholder documents the claim on a W-8BEN or W-8BEN-E. Without a valid claim the rate is 30%.
What is the U.S. withholding rate on royalties paid to a resident of Luxembourg?
0% on copyright and software royalties (income code 12), 0% on patent royalties and 0% on film and television royalties, under Article 13(1).
What is the U.S. withholding rate on interest paid to a resident of Luxembourg?
0% under Article 12(1), before considering the Code's own exemptions for portfolio interest and bank deposit interest.
Is a contractor from Luxembourg working in the United States exempt from U.S. withholding?
Under Article 15, pay for independent personal services is exempt if the contractor is present in the United States for no more than no limit, subject to the conditions in the article. An individual claims the exemption on Form 8233; without it, withhold 30%.
Do we withhold on a contractor from Luxembourg who works only outside the United States?
No. Pay for services performed entirely outside the United States is foreign-source income: no withholding and no Form 1042-S. Keep the contractor's W-8BEN or W-8BEN-E on file.
Can a Luxembourg holding company claim U.S. treaty benefits?
Not if it is a 1929 holding company, an investment company under the Act of March 30, 1988, or another company with similar special tax treatment. Article 24(10) says these are not residents of Luxembourg for the treaty.
Is there a 0% rate on U.S. dividends paid to a Luxembourg parent?
No. The 0% rate in Article 10(2)(b) applies only to dividends paid by Luxembourg companies. U.S. dividends to a Luxembourg company holding directly 10% of the voting stock are 5%.
Is interest paid to a Luxembourg company withheld on?
Generally no. Interest is taxable only in Luxembourg, except profit-contingent interest (up to 15%) and REMIC excess inclusions.
The IRS notes behind the figures
Notes to the rates (IRS Table 1)
- g Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).
- u If enterprise earns income from leasing of equipment in the conduct of a trade or business, covered by Business Profits article (net tax). If passive income from the leasing of equipment, and not in Royalty article, covered by the Other Income article, if any. In Pakistan payment for TV broadcasting rights are covered by the Royalty article but not rental income from motion picture films.
- w The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or a real estate investment trust (REIT). However, that rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is an individual holding less than a 10% interest (25% in the case of Portugal, Thailand, and Tunisia) in the REIT.
- jj The rate is 15% (10% for Bulgaria and Spain; 30% for Austria, Germany, and Switzerland) for contingent interest that does not qualify as portfolio interest. In general, contingent interest is interest that is determined with reference to (a) receipts, sales, income, profits or other cash flow of the debtor or a related person, (b) any change in the value of any property of the debtor or a related person, or (c) any dividend, partnership distribution, or similar payment made by the debtor or related person. For Sweden and Germany, contingent interest is covered by the dividends article of the treaty.
- ss 15% rate applies if income is attributable to a permanent establishment which that enterprise has in a third state, if the tax that is actually paid with respect to such income in the third state is less than 60 percent of the tax that would have been payable in the treaty country if the income were earned in by the enterprise and were not attributable to the permanent establishment in the third state, unless derived in the active conduct of a trade or business in that third state.
Notes to the services table (IRS Table 2)
- 7 Exemption does not apply to the extent income is attributable to the recipient's fixed U.S. base. For residents of Korea and Norway, the fixed base must be maintained for more than 182 days (for Norway, 30 days in the case of the exploration or exploitation of the seabed and sub-soil and their natural resources); for residents of Morocco, the fixed base must be maintained for more than 89 days.
- 9 Does not apply to compensation for research work for other than the U.S. educational institution (or, for Italy, a medical facility that is primarily publicly funded) involved.
- 11 Applies only to full-time student or trainee.
- 12 Fees paid to a resident of the treaty country for services performed in the United States as a director of a U.S. corporation are subject to U.S. tax.
- 17 The exemption does not apply if the employee's compensation is borne by a permanent establishment (or in some cases a fixed base) that the employer has in the United States.
- 25 Exemption does not apply if gross receipts (including reimbursements) exceed this amount.
- 45 The time limit pertains only to an apprentice or business trainee.
- 57 Remuneration for employment exercised aboard a ship or aircraft operated in international traffic by a resident of a contracting State may be taxed in that State. Canada may tax the income from employment if the income is derived by a resident of Canada and the ship or aircraft is operated by a resident of Canada. If operated by a Luxembourg resident and Luxembourg fails to tax the income, such income shall be taxed in the State of which the employee is a resident. The income may be taxed in Tunisia only if the ship or aircraft is operated by an enterprise that is managed and controlled in Tunisia.
Transcribed from the IRS Tax Treaty Tables. Treaty texts and technical explanations: United States income tax treaties, A to Z.
Other treaty countries
Australia · Austria · Bangladesh · Barbados · Belgium · Bulgaria · Canada · Chile · China · Commonwealth of Independent States · Cyprus · Czech Republic · Denmark · Egypt · Estonia · Finland · France · Germany · Greece · Iceland · India · Indonesia · Ireland · Israel · Italy · Jamaica · Japan · Kazakhstan · Latvia · Lithuania · Malta · Mexico · Morocco · Netherlands · New Zealand · Norway · Pakistan · Philippines · Poland · Portugal · Romania · Slovak Republic · Slovenia · South Africa · South Korea · Spain · Sri Lanka · Sweden · Switzerland · Thailand · Trinidad and Tobago · Tunisia · Turkey · Ukraine · United Kingdom · Venezuela