Luxembourg's 2019 Finance Bill: Key Tax Considerations

A version of this article first appeared in Accountancy Daily.

Following the smooth passage of a new Budget bill, Luxembourg has cut the rate of corporate income tax with immediate effect to attract more international investors.

The decrease in the corporate income tax (CIT) rate was promised in the Government's coalition agreement for the period 2018-2023 following the 2018 general elections.

Previously CIT was levied at a rate of:

15% where net profit did not exceed EUR 25,000 EUR 3,750 plus 33% of net profit exceeding EUR 25,000 where net profit ranged from EUR 25,000 to EUR 30,000 18% where net profit exceeded EUR 30,000 On top of CIT, Luxembourg companies are liable for (i) a solidarity surcharge equal to 7% of the CIT contribution and (ii) the municipal business tax, whose taxable basis is similar to the CIT's and whose rates depend on the municipality where the company is established (for example, in Luxembourg city the rate is 6.75%).

Altogether Luxembourg companies were therefore in principle liable for tax on their worldwide income at an aggregate rate of 26.01%.

Under the Bill, the bracket for minimum tax has increased from EUR 25,000 to EUR 175,000. Additionally, the intermediary rate is now EUR 26,250 plus 31% of net profit exceeding EUR 175,000 where net profit ranges from EUR 175,000 to EUR 200,000. Where net profit exceeds EUR 200,000, the rate is 17%.

The new rates apply with immediate effect for fiscal year 2019. No change to the solidarity surcharge or municipal business tax is anticipated at this stage.

For a Luxembourg company with profits exceeding EUR 200,000, the aggregate tax rate has decreased to 24.94% from 26.01%.

Along with the above CIT and additional charges, a Luxembourg company will still be subject to net wealth tax (NWT) annually at the rate of 0.5%, assessed on its unitary value (assets minus liabilities). Assets qualifying for the participation exemption regime are exempt from the NWT basis (deduction of connected liabilities is then disallowed). Such companies will be liable for at least the minimum NWT (when the amount of NWT is lower than the minimum NWT), whose amount varies depending on the asset structure or the company, as follows:

minimum NWT of EUR 4,815 for holding companies minimum NWT varying from EUR 535 to EUR 32,100 for other companies Put into perspective with other European countries, the 2019 rate would be higher than the average 21.86% observed in the EU for 2018 and 21.68% for 2019...