Luxembourg: Luxembourg Tax Reform: Measures Affecting Corporations And Individuals

Last Updated: 25 August 2016
Article by Gaetan Grein

The Luxembourg government has presented to the parliament draft law n°7020, concerning new tax measures applicable to corporations and individuals from 1 January 2017.

The draft law covers corporate, indirect and individual taxation measures that aim to render Luxembourg's tax legislation more sustainable, fair and competitive. The draft law is also a reflection of the Government's mission to align Luxembourg with international standards in tax matters.

Updates on corporate tax matters

Corporate income tax (CIT) rate

  • The CIT rate would be reduced from the current rate of 21% to 19% in 2017 and to 18% in 2018. As a result, the overall nominal tax rate (for company having its registered office in Luxembourg-City) would be reduced from 29,22% to 27,08% in 2017 and 26,01% in 2018.
  • Introduction of a reduced CIT rate of 15% applicable as from the FY 2017 for companies with a tax base of less than €25,000. The draft law adds for companies with a tax base of between €25,000 and €30,001, a CIT of €3,750 plus 39% of the tax base above €25,000 (for FY 2017) / of 33% of the tax base above €25,000 (for FY 2018).

Minimum net wealth tax (NWT)

  • The amount of minimum NWT applicable as from 1 January 2016 would increase from €3,210 to €4,815 for companies with fixed financial assets, transferrable securities, receivables owed to affiliated undertakings and cash at bank exceeding 90% of their balance sheet total and €350,000.

Limitations on the use of future tax losses

  • The tax losses generated until 2016 will remain tax deductible without any time limitation.
  • The losses generated as from financial year closing after 31 December 2016 can be used for a limited period of 17 years.
  • The oldest losses would be deemed to be used first.
  • These measures would similarly apply for CIT and Municipal Business Tax (MBT).

(An earlier proposal that taxable profits could only be offset up to 80% with available losses has been abandoned).

Investment tax credit

The investment tax credit (ITC) regime would be improved as follows.

  • The tax credit for additional investments would be increased from 12% to 13% while the tax credit for global investments would be increased from 7% to 8% for the tranche not exceeding €150,000.
  • The global tax credit rate for goods qualifying for the special amortisation foreseen by the art. 32bis of the Luxembourg Income Tax Law (LITL) would be increased from 8% to 9% for the tranche not exceeding €150,000.
  • ITC would also be granted for eligible assets physically located/used on the territory of another state part of the European Economic Area (EEA).

Unemployed tax credit

  • The tax credit for unemployed persons would be extended until the end of 2019.

Neutralisation of exchange gains

The scope of the art.54bis of LITL has been widened. Indeed, the tax deferral of foreign exchange gains resulting from assets denominated in currency other than Euro and representing the share capital of a company would be applicable to any type of taxpayers (and not only to bank/insurance/reinsurance companies as is currently the case) upon filing of a written request no later than three months before the end of the first financial year as from which the benefit is requested. If companies intend to already apply this in 2016, the request would have to be filed before 1 July 2017.

Registration duty

  • The 0.24% registration duty due on notarial deeds documenting the transfer of debt agreements should be abolished.

Business transfers

  • In order to facilitate the transfer of a business to the next family generation or to employees, a tax deferral would be introduced for the capital gain realised on real estate assets (land and buildings) held by the enterprise (under certain conditions) up to the time of the transferor decides to transfer the immovable property to his private wealth or until the buyer no longer exploits the transferred activity or part of immovable property or changes his activity.

Deferred depreciation

  • The linear depreciation of an asset for a given financial year could be deferred until at the latest the end of the useful life of such asset upon request of a taxpayer. This tax measure would increase the CIT due for a given year and may allow to reduce the NWT due (through allocation of a special reserve/creditable CIT liability).

Mandatory electronic filing of the corporate tax returns

  • As from the fiscal year 2017, Luxembourg corporations would have to file their CIT, MBT and NWT (form 500) by electronic means.

Increase of penalties

  • Penalties due for incomplete or inexact information included in the tax returns or non-filing of tax returns would be fixed at an amount not exceeding 25% of the taxes avoided or unduly reimbursed but not less than 5% of the taxes avoided or unduly reimbursed. " In case of late filing of CIT, MBT and NWT returns, the Luxembourg tax authorities could impose a lump sum penalty amounting up to €25,000 (instead of the current €1,240).

Value added tax (VAT)

  • Introduction of new provisions to render ipso jure or de facto managers (dirigeants de droit ou de fait) liable for the fulfilment of the VAT obligations, including the payment of the VAT due, incurred by companies which they are in charge of. This rule also applies to liquidators and receivers.
  • Introduction of personal and joint liability for the ipso jure or de facto managers, liquidators and receivers where VAT obligations have not been met and where the VAT debt has not been settled by the companies which they are in charge of.
  • Increase in late filing penalties to maximum €25,000.
  • Increase in ad valorem penalties from the current rate of 10% to 50% in the event that the payment of VAT has been evaded or where the refund of VAT is unduly obtained.
  • Introduction of specific new measures in the VAT Law and in the Criminal Code to combat VAT fraud and VAT evasion.

The bill is still to be adopted by the Parliament and will be applicable as from 1 January 2017.

Talk to us

TMF Luxembourg experts can assess the impact of the new tax measures on your business, through an attentive estimation of the yearly corporate tax due. We can prepare late tax file(s) quickly and at an unbeatable price; allowing you to mitigate the new relevant penalties. We can also take care of the electronic filing of the tax returns on your behalf and perform a compliance check of your company activities; to identify transactions that may not be compliant with the VAT law - reducing your risk of penalties. 

We can also take care of VAT registration/de-registration, preparation and electronic filing of VAT returns of the Company and its Directors/Managers, to help you meet your local compliance needs. TMF Luxembourg already files returns via the eCDF platform, which becomes standard as of 2017.

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.

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