On 26 April 2019, the 2019 budget law was published in the Luxembourg Official Gazette.
The Bill of Law 7450 on the 2019 budget was finally adopted by the Luxembourg Parliament on April 25, 2019 without significant amendments.
As far as corporate tax is concerned, new provisions are introduced in Luxembourg law including inter alia a decrease of the corporate income tax rate (from 26.01% to 24.94%) and a specific provision allowing the interest limitation to be (also) computed on a tax-consolidated basis.
The budget law also extends the application of reduced VAT rates to certain products.
Corporate income tax decrease
The corporate income tax rate is reduced from 18% applicable for the financial year 2018 to 17% for the financial year 2019. However, the "solidarity surtax" levied on the corporate income tax rate and the municipal business tax rates payable by Luxembourg corporate taxpayers remain the same.
Taking into consideration the new provisions, the overall 2019 income tax rate for a Luxembourg corporate taxpayer resident in Luxembourg City should amount to 24.94% (compared to 26.01% applicable for the financial year 2018).
Furthermore, the reduced 15% corporate income tax rate applicable until now for companies having a tax basis lower than EUR 25,000 is extended for the 2019 financial year to companies having a taxable basis lower than EUR 175,000. This means that for this portion of income, such Luxembourg corporate taxpayers should be subject to Luxembourg corporate income tax at a rate of 22.8%.
Interest deductibility limitation – Fiscal unity
The interest limitation rule implemented in Luxembourg law last year as a transposition of the Anti-Tax Avoidance Directive (ATAD1) provided for a limitation for Luxembourg corporate taxpayers to deduct their net interest expense to the highest of 30% of their tax EBITDA or EUR 3million on a standalone basis.
The new provisions contained in the budget law allow Luxembourg corporate taxpayers to apply the interest deductibility limitation at the level of the fiscal unity (ie on a consolidated basis).
Therefore, as from the financial year starting 1 January 2019, in the context of a Luxembourg fiscal unity, Luxembourg corporate taxpayers will have the possibility to apply the interest limitation rule either on a consolidated basis or on a standalone basis.
Reduction of VAT rates applicable to certain products
The budget law contains VAT measures. In this respect, the benefit of reduced VAT rates is extended to certain products.
The application of the super-reduced VAT rate of 3% is extended to:
- The supply of books, newspapers and magazines, either physically or electronically supplied As an exception to this newly extended provision, publications entirely or predominantly dedicated to advertising, or whose content is entirely or predominantly related to video or audio content or intended for adult entertainment are excluded.
- The supply of certain para-pharmaceutical products.
These new VAT measures contained in the budget law are applicable only as from 1 May 2019.
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.