New Bill On Luxembourg 2017 Tax Reform

Bill of law n°7020 amends and confirms the new tax measures previously announced:

1. Corporate income tax (CIT)

   1.1 Introduction of a 17 year limitation on the use of tax losses as from 2017

   The limitation will apply from 2017. Tax losses generated until December 31, 2016 can continue to be carried forward indefinitely. The oldest tax losses would be offset first.

   The current proposal for the limitation in time to 17 years is good news as it was initially announced that tax losses generated after 2016 would be useable for a shorter period of time (10 years) and only up to a certain percentage (e.g. 80%) of the taxable profit per year. Even if the draft bill may still be subject to amendments, we believe that the limitation of the use of the tax losses to a certain percentage of the taxable profit will be very likely abandoned.

   1.2 Reduction of the corporate income tax rate to 19% in 2017 and 18% in 2018

   As announced, the corporate income tax rate will be reduced from 21% to 19% from 1 January, 2017 and 18% from 1 January, 2018 for companies having an annual taxable income of more than €30,000. Assuming that the contribution for the employment insurance of 7% and the municipal business tax in Luxembourg of 6,75% remain unchanged, the combined corporate tax rate in Luxembourg City will drop from 29.22% to 27.08% in 2017 (19x1.07+6.75) and 26.01% as from 2018 (19x1.07+6.75).

   The reduced rate of 20% currently applicable for companies with an annual taxable profit of up to €15,000 has been decreased to 15% and the taxable profit threshold will be €25,000.

   As the 19% rate for 2017 (18% as from 2018) will apply to companies having taxable profit higher than €30,000, an intermediate taxation level is provided for taxpayers with a taxable income between €25,000 and €30,000. The tax due will be equal to €3,750 (15% of €25,000) + 39% of the taxable income exceeding €25,000 for 2017 and €3,750 + 33% of the taxable income exceeding €30,000 for 2018.

   The Luxembourg Government confirmed that it will closely follow the European and International situation in light of the implementation of the OCED's BEPS rules to envisage, if need be, an additional adjustment. The commentaries on the draft bill also recall Luxembourg's intention of maintaining a competitive international tax environment.

   1.3 Extension of the tax deferral regime for currency gain or loss regime provided by article 54 bis LITL

   A new version of article 54 bis LITL will allow a tax deferral on...