Overview Of Luxembourg Tax Developments

This report summarizes some of the main Luxembourg tax developments that took place between the end of 2015 and August 2016. The selected developments are mainly relevant to companies and the international tax practice.

1. Repeal of the minimum corporate income tax (CIT) - Introduction of a differentiated rate of net wealth tax (NWT) and of a minimum NWT - Introduction of a step-up in basis for individuals migrating to Luxembourg

   1.1 Repeal of the minimum CIT - Introduction of a differentiated rate of NWT and of a minimum NWT

   By law of 18 December 20151, a digressive scale for NWT rates was introduced with effect as from 1 January 2016:

   A rate of 0.5% applies on the taxable net wealth2 up to and including €500,000,000 (e.g. for a taxable wealth of €500,000,000 a normal NWT of €2,500,000 is due). A reduced rate of 0.05% applies on the portion of the taxable net wealth exceeding €500,000,000 (e.g. for a taxable wealth of €1,750,000,000 the normal NWT will amount to €3,152,000 (i.e. 2,500,000 + 0.05% x (1,750,000,000 - 500,000,000)). Additionally, the minimum CIT was abolished and the existing provisions related to the minimum NWT (of €25 for private limited liability companies (Sàrl), €62.5 for public limited liability companies (SA) and for partnerships limited by shares (SCA)) have been replaced by new rules. The new minimum NWT applies to Luxembourg resident corporate entities, i.e. entities which have their statutory seat and/or their central administration in Luxembourg. Non-resident entities are out of the scope of the minimum NWT3. Permanent establishment of non-resident entities are subject to the normal NWT.

   A minimum NWT of €3,210 applies for the entities having the sum of their fixed financial assets, amounts owed by affiliated undertakings, transferable securities, cash at bank, cash in postal check accounts and cash in hand exceeding:

   90% of the total of their balance sheet4 of the year N-1. €350,000. Entities that do not fulfil at least one the above criteria are subject to a minimum NWT ranging from €535 to €32,100 depending on the total of their balance sheet:

   The minimum NWT is further adjusted/reduced by the CIT of the year N-1 (increased by the solidarity surcharge and decreased by available tax credits).

   The laws on securitization vehicles, investment companies in risk capital (sociétés d'investissment en capital risque or SICARs), pension savings companies in the form of the so-called SEPCAVs (sociétés d'épargne pension à capital variable) and pension savings associations in the form of the so-called ASSEPs (associations d'épargne pension) are amended so that the new minimum NWT is also applicable to these entities although they remain exempt from the normal NWT.

   As a consequence of the co-existence of the normal NWT and the minimum NWT, taxpayers will be liable to the highest amount between their normal NWT and their minimum NWT. A comparative calculation should be prepared annually in order to determine the applicable NWT.

   In case of a tax unity, each company remains individually liable to its minimum NWT. The overall amount of minimum NWT within a tax consolidated group is however capped at €32,100. The minimum NWT due by the members of a tax consolidated group is automatically adjusted/reduced by the CIT of the year N-1 of the tax consolidated group (increased by the solidarity surcharge and decreased by available tax credits) in a certain order.

   Although it is still possible for taxpayers to reduce their normal NWT burden through the creation of a specific reserve (corresponding to 5 times the amount of NWT reduced)...