Luxembourg: Amendment Of Luxembourg Tax Legislation

Bill n°6497 was approved by the Luxembourg Parliament on 13 December 2012 and published in the official gazette (Memorial A) on 28 December 2012. The most salient amendments to Luxembourg tax legislation for 2013, which clearly aim to increase tax revenues, are as follows.

CORPORATIONS

Increase of the solidarity surcharge from 5% to 7%

The aggregate maximum income tax rate for companies therefore increases from 28.8% to 29.22% in Luxembourg-city, i.e. 22.47% (21% x 107%) corporate income (CIT) tax and 6.75% municipal business tax.

Substantial amendments to the minimum CIT

A EUR 1,500 minimum CIT was introduced in Luxembourg tax legislation in 2012. The minimum CIT was however applicable to – broadly – holding and financing companies only.

As from 2013, the minimum corporate tax applicable to - broadly - holding and financing companies increases from EUR 1,500 to EUR 3,000 (EUR 3,210 including solidarity surcharge) The asset test establishing the scope of such minimum CIT has been clarified.

In addition, companies out of the scope of the EUR 3,000 minimum tax are now subject to a new minimum corporate tax ranging from EUR 500 to EUR 20,000 (EUR 535 to EUR 21,400 including solidarity surcharge) depending on the balance sheet amount of the corporate taxpayer.

The direct tax authorities announced on 21 December 2012 that value of assets exclusively taxable in another jurisdiction pursuant to a tax treaty concluded by Luxembourg would be excluded from the minimum CIT computation.

Finally, the law provides for the following clarifications and amendments in relation to the minimum CIT:

• The minimum CIT is only applicable to corporate resident taxpayers.
• To the extent applicable, the minimum CIT is a non-refundable advance which is creditable on future CIT liabilities of the taxpayer.
• In the case of a tax consolidation, the aggregate minimum CIT is capped at EUR 21,400.
• Net worth tax reduction under Paragraph 8a of the net worth tax law is limited to the amount of corporate income tax (including solidarity surcharge) reduced by the relevant minimum CIT.

INDIVIDUALS

Solidarity surcharge

Increase of the solidarity surcharge for individuals from 4% to 7% (for income under EUR 150,000 per year, single taxpayer) and from 6% to 9% (for the exceeding portion of income).

Progressive income tax rates

Introduction of a new income tax bracket of 40% for income exceeding EUR 100,000 per year (single taxpayer). The maximum income tax rate will therefore increase to 43.6% on the portion of income exceeding EUR 150,000 (single taxpayer).

Deductible allowances

Various limitations of taxpayer's deductible allowances such as the reduction of lump-sum travel expenses for commuting from home to workplace and the reduction of debit interests' deduction as special expenses.

MISCELLANEOUS

• Reduction of tax credits for investments;
• Increase of the VAT registration and exemption threshold (for supply of goods and services) from EUR 10,000 to EUR 25,000.
• The tax administration issued a new Circular on income tax treatment of stock-options plans (Circular n°104/02 dated 20 December 2012 replacing Circular n°104/02 dated 11 January 2002). The distinction between freely negotiable options taxable at grant and "virtual" options taxable upon exercise remain unchanged. The important change is that in the absence of a valuation of freely negotiable options, these are deemed to have a value equal to 17.5% of the underlying shares (the deemed value was 7.5% of the underlying shares under Circular n°104/02 dated 11 January 2002). Such value is taxable as salary income in the hands of the employee.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.