Answer ... The values of capital assets in the tax balance sheet must correspond to the values reflected in the commercial balance sheet, unless the tax valuation rules require otherwise. For Luxembourg corporate income tax purposes, the following various valuation bases can be applied, depending on the nature of the asset and/or the transaction:
- acquisition or production cost;
- going-concern value;
- fair market value;
- adjusted value; and
- transferred book value.
Gains arising from the sale of capital assets are treated as ordinary income and are taxed at statutory rates. Inventories, land and participations in the share capital of other companies cannot be amortised for tax purposes.
Answer ... A Luxembourg company can defer the taxation of a capital gain realised on a land or a fixed non-depreciable asset if an amount corresponding to the sale proceeds is reinvested into another fixed asset, including a substantial participation. Upon the sale of such participation, the participation exemption is, however, denied.
The two following investment tax credits are also available for investments in qualifying assets under certain conditions:
- Additional investment tax credit: Under certain conditions, companies may credit on the CIT due an amount equal to 13% of the increase in investments carried out during the tax year in qualifying assets - that is, tangible depreciable assets, other than buildings, livestock and mineral and fossil deposits. The amount of ‘additional investments’ corresponds to the difference between the net book value of the qualifying assets at the end of the financial year increased by the depreciation on those qualifying assets acquired and a reference value corresponding to the average value of qualifying assets at the end of the five preceding financial years.
- Global investment tax credit (which may be applied in addition to the first type of credit): Under certain conditions, companies may credit on the CIT due an amount equal to 8% of the total acquisition price of investments in qualifying assets acquired during the tax year. The global investment tax credit amounts to 8% for the first tranche of €150,000 and 2% for the tranche exceeding €150,000. Since 2018, the tax credit also applies to acquisitions of software and amounts to 8% for the first tranche of €150,000 and 2% for the tranche exceeding €150,000. However, the tax credit may not exceed 10% of the tax due for the tax year during which the operating year is ending during which the acquisition was made.
Answer ... Inventories such as land and participations in the share capital of other companies cannot be depreciated for tax purposes.
Answer ... No, derivatives are not subject to any specific tax rules in Luxembourg.