France-Luxembourg tax treaty: cross-border workers, pensions, companies

The rules that come up in our files

• Residence (Article 4). A resident is a person liable to tax in a State by reason of domicile; a person taxed there only on local-source income is not. In case of dual residence, the tie-breakers are the permanent home, then the centre of vital interests, the habitual abode and nationality; failing that, the two tax authorities decide by mutual agreement. The French authorities regard an apartment owned in Luxembourg and not rented out as a permanent home, even if the owner did not visit it during the year (BOI-INT-CVB-LUX-10, § 70).
• Real estate income (Article 6). Rents are taxable in the State where the property is located, including when received by an enterprise with no permanent establishment in that State.
• Dividends (Article 10). The State of the paying company may levy up to 15% of the gross amount. Dividends are taxable only in the recipient's State when the recipient is a company holding directly at least 5% of the capital for 365 days including the payment date. The term also covers income treated as a distribution, which allows France to withhold on deemed distributions. Real estate investment vehicles that distribute most of their tax-exempt real estate income each year (in France, SIICs and OPCIs meeting those conditions) follow a specific rule: 15% at most for a holding below 10%, domestic rate above.
• Interest (Article 11). Taxable only in the recipient's State of residence; the treaty provides for no withholding tax.
• Royalties (Article 12). Withholding tax capped at 5% in the source State, film royalties included.
• Capital gains (Article 13). Real estate gains are taxable in the State where the property is located. The same applies to shares or interests in a company, trust or other entity that, at any time during the 365 days before the sale, derive more than 50% of their value from real estate located in that State, excluding property used in the entity's own business. Other shares are taxable only in the seller's State of residence, subject to the substantial shareholding rule below.
• Substantial shareholding (Article 13, paragraph 5). An individual who sells shares carrying, alone or with related persons, at least 25% of the profits of a company resident in the other State remains taxable there if the individual was a resident of that other State at any time during the five years preceding the sale. The clause targets the French business owner who moves to Luxembourg and sells the company shortly afterwards: France keeps its taxing right.
• Directors' fees (Article 15). Fees received as a member of the board of directors or supervisory board are taxable in the company's State; a salary paid to the same person for actual employment falls under Article 14.
• Entertainers, sportspersons and models (Article 16). Taxable where they perform, including income linked to their reputation, unless the gross annual amount does not exceed EUR 20,000: only the State of residence then taxes.
• Capital (Article 21). Real estate is taxable in the State where it is located; other capital, only in the State of residence. The French real estate wealth tax (IFI) of a Luxembourg resident therefore covers French property. Under the former treaty, the Cour de cassation held that shares in French property-holding civil companies (SCI) could be taxed in France on that basis (Cass. com., 2 April 2025, no. 23-14.568).
• Mutual agreement and arbitration (Article 24). The request is filed with the competent authority of either State within three years of the first notification of the disputed measure. If no agreement is reached within two years of receipt of the information requested, extendable by one year, the taxpayer may request arbitration.
• Exchange of information (Article 25). Luxembourg cannot invoke bank secrecy against French requests, and both States assist each other in collecting all tax claims (Article 26).

Five Conseil d'État decisions on Luxembourg companies

The French tax authorities most often challenge residence, permanent establishment and beneficial ownership. Most of these decisions were made under the 1958 treaty; they inform how the 2018 treaty reads on the same concepts.

• Place of effective management. A French holding company had moved its registered office to Luxembourg, but its decisions were taken in Paris: its effective centre of management remained in France, and its shareholder could not claim the treaty tax credit on the dividends. The Conseil d'État set the judgment aside on the sole point of Article 122 of the French tax code, the deduction of the Luxembourg taxes borne by the shareholder, and referred the case back to the court (CE, 15 March 2023, no. 449723).
• Permanent establishment: management from a French property. A Luxembourg company whose director, its sole employee, carries out all day-to-day management acts from the company's French property has a permanent establishment there; there is no need to examine whether the activity is carried out with sufficient autonomy (CE, 7 September 2009, no. 308751, Stamping International).
• Permanent establishment: authority to conclude contracts. Where the company disputes that its sole employee could negotiate and conclude contracts, the court must verify this before finding a permanent establishment; a judgment that does not do so is an error of law (CE, 12 December 2014, no. 356870, Findlux).
• Beneficial owner. The reduced withholding rate may be refused where the chain of holdings is an artificial arrangement designed to conceal the real beneficiary of the distribution, which is not a company resident in Luxembourg (CE, 23 November 2016, no. 383838, Eurotrade Juice).
• Interposed Luxembourg companies. The Conseil d'État quashes, for insufficient reasoning, a judgment that had found an abuse of the treaty in a real estate transaction carried out through interposed Luxembourg companies and, ruling on the merits, discharges the company from the assessment (CE, 18 September 2023, no. 466868).

Holdings and SOPARFIs: residence, beneficial ownership and place of effective management

• The SOPARFI must be resident and the beneficial owner. As a fully taxable Luxembourg company, it can claim treaty benefits, including the withholding tax exemption on dividends from French subsidiaries held at 5% or more for 365 days. It must, however, be the beneficial owner of the dividends (Article 10): the treaty rate can be refused to a chain of holdings that conceals the real beneficiary, as the Conseil d'État held under the former treaty (decision cited above).
• Exempt entities are not residents. A person exempt from tax by reason of its status is not a resident under the treaty (BOI-INT-CVB-LUX-10, § 40). A family wealth management company (SPF), exempt from Luxembourg corporate income tax, is therefore in principle not a resident within the meaning of the treaty and cannot claim its benefits. Only collective investment funds comparable to French funds benefit, in proportion to eligible investors, from Articles 10 and 11 (protocol, point 2).
• Place of effective management. A company with its registered office in Luxembourg but its place of effective management in France is resident in France (Article 4, paragraph 3): it is the place where the key management and commercial decisions are taken, a question of fact (BOI-INT-CVB-LUX-10, no. 150). The Conseil d'État applied it to a holding company moved to Luxembourg (CE, 15 March 2023, no. 449723; see our page, in French, siège de direction effective, 209 B et 155 A). The other decisions, on permanent establishment, are set out above; we deal with this risk on our page on tax domicile and permanent establishment.
• French rules still apply. Point 7 of the protocol allows France to apply Articles 115 quinquies, 123 bis, 155 A, 209 B, 212, 238 A and 238-0 A of the French tax code. Article 28 also denies any treaty benefit where obtaining it was one of the principal purposes of an arrangement. For a wealth holding company controlled from France, the annual tax of Article 235 ter C also applies to financial years ending on or after 31 December 2026; where the company is established outside France, it is payable by the French-domiciled individuals who control it.
• French property held by a Luxembourg company. Rents and the gain on sale of the property are taxable in France (Articles 6 and 13), as is the gain on the company's shares if the property represents more than 50% of their value. The annual 3% tax on the market value of property held by entities (Article 990 D of the French tax code) is not among the taxes covered by the treaty, as held under the former treaty (Cour de cassation, commercial chamber, 31 January 2006, no. 02-20.387): its domestic exemptions must be checked every year.
• Changing country rather than structure. Where the question is relocating the family and the holding company, we compare the options on our page relocating a holding company to Geneva, without transposing Swiss solutions to Luxembourg.

What a French resident's return must show

Example 1, cross-border worker above 34 days. A Thionville resident employed in Luxembourg earns EUR 66,000 for 220 working days in 2025, including 44 days of remote work from home. The 34-day threshold is exceeded: France taxes, from the first day, the French share of the salary, i.e. 66,000 × 44 / 220 = EUR 13,200. The remaining EUR 52,800, relating to days worked in Luxembourg, remain taken into account in France with, if actually taxed in Luxembourg in accordance with the treaty, a credit equal to the corresponding French tax: they are not taxed a second time, but they raise the rate applied to the EUR 13,200 and to the household's other income. The Luxembourg taxation of the French share must be corrected in parallel.

Example 2, dividend from a Luxembourg company. A French resident receives EUR 10,000 of dividends from a Luxembourg company; Luxembourg withholds 15%, i.e. EUR 1,500. In France, the dividend bears income tax at the flat rate of 12.8%, i.e. EUR 1,280. The credit equal to the Luxembourg tax is capped at this corresponding French tax: EUR 1,280 is credited, and the EUR 220 excess can be neither carried forward nor refunded. The calculation covers income tax only: the treatment of social levies depends on the recipient's situation, in particular social security coverage.

Example 3, CNAP pensioner. A former cross-border worker, resident in France, receives a Luxembourg social security pension of EUR 18,000 a year. It is taxable only in Luxembourg (Article 17, paragraph 2), but it appears on the French return with a credit equal to the corresponding French tax: it bears no French tax, but it raises the rate applied to the French pension.

• Two separate credits (Article 22). A credit equal to the Luxembourg tax, capped at the French tax, for permanent establishment profits subject to corporate tax, dividends, royalties, real estate and substantial shareholding gains, directors' fees and entertainers' income; a credit equal to the French tax for all other income, provided it is actually subject to Luxembourg tax.
• The corresponding French tax. For income taxed at progressive rates, it is the net income concerned multiplied by the household's average rate (tax due on total income divided by that income); for income taxed at a flat rate, the income multiplied by that rate.
• Luxembourg tax is not deductible from French taxable income, and the credit is set only against the French tax in whose base the income was included.
• Pensions: three rules. Private pensions for past employment: State of residence only (Article 17, paragraph 1). Social security pensions: paying State only (Article 17, paragraph 2). Public pensions: paying State, unless the recipient resides in the other State and holds only its nationality (Article 18, paragraph 2).