Reverse Hybrid Entities: New Luxembourg Guidance on Taxable Income

On 9 June 2023, the Luxembourg Tax Authority (L.T.A.) issued Circular LIR N°168 quarter/1, offering new guidance on how to compute the taxable income of Reverse Hybrid Entities. This applies to certain transparent entities established in Luxembourg, which — under specific conditions — are now treated as corporate taxpayers starting with the 2022 tax year.

To support implementation, the L.T.A. has also published:

• A new mandatory electronic form for reporting by transparent entities

• An accompanying FAQ to guide taxpayers in completing the form

These updates aim to improve clarity and compliance for structures where income may otherwise escape taxation — a key concern addressed by the EU’s Anti-Tax Avoidance Directive (ATAD 2).

Why it matters: Reverse Hybrid Entities are typically partnerships or other transparent structures that are treated differently by various jurisdictions. Luxembourg’s move ensures alignment with international tax rules and prevents untaxed income flows.

📎 You can access the form and guidance directly on the Luxembourg Tax Authority’s website.