Luxembourg Tax Reform: Measures Affecting Corporations And Individuals

The Luxembourg government has presented to the parliament draft law n°7020, concerning new tax measures applicable to corporations and individuals from 1 January 2017.

The draft law covers corporate, indirect and individual taxation measures that aim to render Luxembourg's tax legislation more sustainable, fair and competitive. The draft law is also a reflection of the Government's mission to align Luxembourg with international standards in tax matters.

Updates on corporate tax matters

Corporate income tax (CIT) rate

The CIT rate would be reduced from the current rate of 21% to 19% in 2017 and to 18% in 2018. As a result, the overall nominal tax rate (for company having its registered office in Luxembourg-City) would be reduced from 29,22% to 27,08% in 2017 and 26,01% in 2018. Introduction of a reduced CIT rate of 15% applicable as from the FY 2017 for companies with a tax base of less than €25,000. The draft law adds for companies with a tax base of between €25,000 and €30,001, a CIT of €3,750 plus 39% of the tax base above €25,000 (for FY 2017) / of 33% of the tax base above €25,000 (for FY 2018). Minimum net wealth tax (NWT)

The amount of minimum NWT applicable as from 1 January 2016 would increase from €3,210 to €4,815 for companies with fixed financial assets, transferrable securities, receivables owed to affiliated undertakings and cash at bank exceeding 90% of their balance sheet total and €350,000. Limitations on the use of future tax losses

The tax losses generated until 2016 will remain tax deductible without any time limitation. The losses generated as from financial year closing after 31 December 2016 can be used for a limited period of 17 years. The oldest losses would be deemed to be used first. These measures would similarly apply for CIT and Municipal Business Tax (MBT). (An earlier proposal that taxable profits could only be offset up to 80% with available losses has been abandoned).

Investment tax credit

The investment tax credit (ITC) regime would be improved as follows.

The tax credit for additional investments would be increased from 12% to 13% while the tax credit for global investments would be increased from 7% to 8% for the tranche not exceeding150,000. The global tax credit rate for goods qualifying for the special amortisation foreseen by the art. 32bis of the Luxembourg Income Tax Law (LITL) would be increased from 8% to 9% for the tranche not exceeding150,000. ITC would also be granted for eligible assets...