On 14 January 2009, the Grand Duchy of Luxembourg and the Republic of Albania signed a treaty for the elimination of double taxation with respect to taxes on income and on capital and the prevention of tax evasion and avoidance (the “DTT”). The DTT had however never been ratified due to a change in convention policy regarding the article on the exchange of information. It was decided that the DTT should not be ratified without including the new article on the exchange of information, which now corresponds to that of the OECD model convention. A new Protocol was finally negotiated following a request from Luxembourg to amend Article 26 on the exchange of information and to include the minimum standards resulting from the BEPS project, which was signed on 21 October 2020 (the “Protocol”). The DTT was then approved by the Grand Duchy of Luxembourg by the law of 18 December 2024. As the conditions for the entry into force of the DTT were fulfilled on 25 June 2025, the DTT entered into force on that date for both contracting states, in accordance with Article 28 (1) of the DTT.
Withholding taxes
Withholding taxes on dividends paid to beneficial owners who are resident in the other contracting state cannot exceed 5%, if the beneficial owner is a company that holds, directly or indirectly, at least 25% of the capital of the paying company. In all other cases, the withholding tax on dividend distributions shall not exceed 10%.
Withholding taxes on interest payments made to beneficial owners in the other contracting state cannot exceed 5%. The DTT also foresees a withholding tax exemption for interest payments in very limited situations (e.g. interest payments to the state itself as well as to any of its political subdivisions).
Withholding taxes on royalty payments made to beneficial owners in the other contracting state cannot exceed 5%. On this point, the DTT diverges from the OECD model convention, which provides for exclusive taxation of royalties in the residence state only.
Capital gains
The DTT provides that:
- capital gains from the disposal of immovable property are taxable in the contracting state where such immovable property is located;
- capital gains from the disposal of ships or aircraft operated in international traffic or movable property used in the operation of such ships or aircraft shall be taxable only in the contracting state in which the place of effective management of the company is located.
For capital gains arising from the disposal of any property other than that referred to above, the DTT provides that they are taxable only in the contracting state where the alienator is a resident, i.e. no real estate rich clause has been inserted in the DTT.
Independent personal services
The DTT also includes a specific provision for professional services or other activities of an independent character, which shall especially include independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. Any such income derived by a resident of one contracting state may be taxed in the other contracting state, in case the professional services are carried out through a fixed base regularly available to the taxpayer in that other contracting state or in case the taxpayer stays in that other contracting state for a period or several periods amounting to or exceeding in the aggregate 183 days in any twelve months period commencing or ending in the concerned fiscal year.
Elimination of double taxation
In general, Luxembourg will apply the exemption method for the purpose of eliminating double taxation for most types of income. In certain situations, like dividends, interest, royalties and entertainers' and sportspersons' income, Luxembourg will apply the credit method.
Entitlement to benefits
As recommended by the OECD model convention, the Protocol adds a new Article 27A to the DTT relating to the entitlement to benefits, which however remains limited, by solely including a principal purpose test and foreseeing the possibility of discretionary relief.
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