Luxembourg Tax Alert 2016-09

New tax measures announced for the Luxembourg 2017 tax reform

On 26 April 2016, Prime Minister Xavier Bettel delivered his State of the Nation speech, during which he highlighted some of the proposed changes to the Luxembourg tax system to be implemented in 2017.

Most of these measures had already been announced by the government in February 2016, amongst which was the expected progressive decrease of the corporate income tax rate from 21% to 18% (thus leading to a global tax rate of appr. 26% in 2018). Other promising actions pledged by the government in February targeted not only the taxation of corporations, but also of individuals. For more details on the measures announced in February, see our previous newsletter here.

On 21 April 2016, Finance Minister Pierre Gramegna presented clarifications and announced additional measures to be included in the tax reform for 2017, again for both individuals and corporations. These measures were confirmed by Prime Minister Bettel during his allocution before Parliament.

Additional measures for corporations:

Facing the challenge of maintaining Luxembourg's tax competitiveness, the government reaffirmed that the developments in the international tax landscape and in particular the transposition of the BEPS measures at the European level will be followed closely. The objective, said Finance Minister Gramegna, is to adapt the Luxembourg tax framework to these changes in order to ensure that it remains attractive while also respecting the new international and European standards, in the spirit of a level playing field.

In addition, the government announced the creation of specialised working groups to address various key topics for the competitiveness of the country, such as the development of start-ups and more generally of small- and medium-sized enterprises, as well as the introduction of a regime for an immunised reserve for investment.

To remain competitive and stimulate corporate investments in Luxembourg, in particular in the innovation sector, the government also proposed an increase in investment tax credit rates by one percentage point. Consequently, the complementary and global investment tax credits would be increased from 12% to 13% and from 7% to 8% respectively (while the current 2% rate for investments exceeding150,000 would remain unchanged). The investment tax credit for assets approved for the special...