New Tax Measures Revealed In The Coalition Agreement Published By The Future Government - ATAD Bill Amendments

On 3 December 2018, the coalition partners finalised their governing plan for the next 5 years in a coalition agreement (“Coalition Agreement”) which was signed the same day. The Coalition Agreement confirms the ambition, amongst others, to pursue a responsible, sustainable and innovative financial policy based on sound public finances. It also recognises the importance of maintaining an attractive economic environment through a competitive economic and tax environment as well as a high level of infrastructure investments. Furthermore it provides for diversification of the economy and the financial centre for high-tech businesses.

On 5 December 2018, the government also submitted to the Parliament a modified bill implementing the ATAD. Contrary to some expectations in the market, the new bill did not include any substantial changes, however, and was limited to some technical and linguistic modifications as suggested by the State Council. Therefore, from a substantive perspective, the initial ATAD bill remains largely unchanged. With regard to the initial ATAD implementation bill, please revert to the related Newsflash.

The Coalition Agreement contains amongst others several tax related provisions, which may be summarised as follows:

Public Finances

The future government has committed itself to continuing to pursue a responsible budget policy by observing the medium term objective of its public finances throughout its term and maintaining public debt at all times below the 30% GDP threshold. It has also committed itself to maintaining Luxembourg's AAA rating.

Corporate taxation

Reduction of the aggregate corporate income and municipal tax rate by 1% as from 1 January 2019 (currently the maximum aggregate rate is 26.01% for Luxembourg-city);

Increase in the maximum profit base benefitting from the reduced corporate tax rate of 15% from € 25,000 to € 175,000;

Commitment to taking into account the consequences of technical progress, Brexit and international developments (ATAD I and II, CCTB, CCCTB, etc.) in order to ensure that the effective taxation of business will not exceed its current level;

Exemption of all financial state support;

Simplification of the tax system and modernisation of the tax regime of non-profit institutions;

Replacement of the current tax regime of warrants by an improved regime for highly qualified impatriates and employee participation schemes;

Improvement of the current tax regime for the use of electric and...