The Luxembourg Administration of Direct Tax has released Circular L.I.R. no. 164/1 on 29 January 2025, detailing updated rules for determining interest rates on debit current accounts held by associates or shareholders of corporate taxpayers. The circular establishes distinct approaches based on whether the associate or shareholder is a natural person or a related company.
For natural persons, the arm’s length principle applies, but a simplified method is permitted. This method allows the use of the annual interest rate for consumer credit, which can be determined by referencing monthly interest rate data published by the Central Bank of Luxembourg.
For related companies, a case-by-case analysis is required in accordance with the arm’s length principle as outlined in Luxembourg tax law. Several factors influence the applicable interest rate, including the currency of the debt, exchange rate risks, hedging risks, refinancing rates, and debt maturity.
