ARTICLE
9 January 2025

Luxembourg Introduces Tax Reforms To Enhance Competitiveness

H
Harneys

Contributor

Harneys is a full-service offshore law firm offering expert legal advice on the laws of jurisdictions including the British Virgin Islands, Cayman Islands, Luxembourg, and more. Established in 1960, the firm has grown to 11 global locations with over 180 lawyers, serving top law firms, financial institutions, investment funds, and high-net-worth individuals. Harneys provides comprehensive legal support across transactional, contentious, and private client matters, often in collaboration with Harneys Fiduciary, which delivers corporate and wealth management services. Known for its role in shaping offshore jurisprudence, the firm also advises on legislative developments and excels in handling complex cross-border transactions and disputes.

On 11 December 2024, Luxembourg's Parliament approved a series of tax measures aimed at supporting individuals and boosting the attractiveness of businesses.
Luxembourg Tax

On 11 December 2024, Luxembourg’s Parliament approved a series of tax measures aimed at supporting individuals and boosting the attractiveness of businesses. These changes, effective from tax years 2024 or 2025 depending on the provision, focus on reducing corporate tax burdens, updating rules, and aligning with international standards.

Key business tax reforms

  1. Corporate Income Tax (CIT) rate reduction -  Starting 2025, the CIT rate will drop by 1 per cent from 17 per cent to 16 per cent, lowering the overall tax rate for companies incorporated in Luxembourg City to 23.87 per cent.
  2. Simplified Net Wealth Tax (NWT) -  From 2025, the minimum NWT will follow a three-tier structure only taking into account the balance sheet without the proportion of final assets. The minimum net wealth tax will now be capped at €4,815 significantly reducing the burden on large holding and finance companies.
  3. Participation exemption opt-out -  Businesses can waive the benefit of the Luxembourg participation exemption regime and the 50 per cent tax exemption for specific shareholdings, facilitating the use of tax losses and aligning with international tax practices.
  4. Mandatory e-filing -  As of January 2025, e-filing becomes mandatory for withholding tax returns on directors’ fees, wages, pensions, and other income.
  5. ETF tax relief -  The subscription tax exemption, previously limited to passively managed ETFs, is extended to actively managed ETFs qualifying as UCITS from 2025.
  6. Amendment of the interest deduction limitation rules -  A new equity ratio escape clause allows single-entity groups to deduct the totality of their exceeding borrowing costs if specific equity-to-asset ratio conditions are met, with safeguards against abuse. This could be seen as a game changer especially for Luxembourg securitisation companies which may benefit from this escape clause.
  7. Improved SPF rules -  The tax regime for family wealth management companies (SPFs) is updated, raising the minimum annual subscription tax from 100 to €1,000 and introducing stricter compliance measures.

Individual tax benefits

Luxembourg has also implemented measures for individuals, including:

  • Adjustments to income tax brackets
  • Modernisation of the inpatriate regime
  • A youth employee bonus
  • New overtime tax credits
  • Profit-sharing enhancements

These tax reforms underscore Luxembourg's commitment to maintaining its status as a business-friendly hub while ensuring fair and transparent practices. The changes enhance flexibility for businesses, simplify tax compliance, and provide targeted benefits for individuals.

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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