On 26 July the draft law N° 7020 (the Draft Law) was submitted by the Luxembourg Government to the Parliament regarding the upcoming tax law changes. The Draft Law aims at enhancing competitiveness, promoting fairness and favouring the internationally agreed standards. Both corporate and individual taxpayers, direct and indirect taxes are going to be affected by the Draft Law.
The most significant tax measures that impact on corporate taxpayers are highlighted below:
Corporate income tax rate
The corporate income tax rate should be decreased from 21% to 19% in 2017 leading to the reduced aggregate corporate income tax rate from 29.22% to 27.08% (in Luxembourg City) and to 18% in 2018 which would result in the aggregate corporate income tax rate of 26.01% (in Luxembourg City) accordingly.
The corporate income tax rate would be decreased from 20% to 15% for companies with a taxable basis inferior to EUR 25,000, which would result in an aggregate corporate income tax rate of 22.80% (in Luxembourg City).
As of 2017, companies having a taxable income between EUR 25,000 and EUR 30,000 would be subject to a tax charge amounting to EUR 3,750 plus 39% of the taxable income above EUR 25,000. As of 2018, the tax rate to be applied on the taxable income above EUR 25,000 would be 33%.
Minimum net wealth tax
The minimum net wealth tax will be increased from EUR 3,210 to EUR 4,815 for holding and finance enterprises if the amount of fixed financial assets, transferable securities and cash at bank exceeds 90% of their total assets and EUR 350,000.
Special net wealth tax reserve
The rules relating to the constitution of the special net wealth tax reserve would be modified.
The constitution of a special net wealth tax reserve to reduce the new wealth tax charge for a determined year would have to be agreed upon the allocation of the result for the previous fiscal year.
The net wealth tax reserve should be booked no later than at the end of the year for which the tax charge reduction is requested.
Tax losses carried forward
As from 1 January 2017 tax losses carried forward would be subject to a limited period of 17 years. The earliest tax losses would be deducted first. Tax losses incurred before 2017 would not be affected by the new tax legislation and would be carried for an unlimited duration.
The exchange gains neutralization regime that is currently applicable only to some of the legal entities under the tax law regulation would be extended to all Luxembourg companies.
Taxpayers would have to file a written request in order to benefit from the possibility to neutralize exchange gains on assets denominated in a foreign currency.
The request should be submitted no later than 3 month before the end of the first financial year as from which the possibility to neutralize exchange gains is expected. The request for the fiscal year of 2016 should be filed before 1 July 2017.
Deferred amortization regime
Taxpayers would be allowed to defer the deduction of the annual amount of depreciation of an asset. The unused depreciation amount could be carried forward and used at the latest at the end of the economic life. The use of this option would increase the corporate income tax charge for the fiscal year as well as decrease the net wealth tax charge.
Investment tax credits
Following the Draft Law, the complementary and global investment tax credits would be increased.
The complementary tax credit would be raised from 12% to 13% whereas the global tax credit would increase from 7% to 8% for an investment not exceeding EUR 150,000 and from 8% to 9% for assets which can be amortized in less than 3 years.
Tax returns for corporate income tax, municipal business tax, and net wealth tax should be electronically filed as from 2017.
Penalties for inadequate information provided in tax returns or non-filing of tax returns should not exceed 25% of the taxes avoided or unfairly reimbursed but should not be inferior to 5% of the taxes avoided or unfairly reimbursed.
In the Draft Law the penalty for late filing of tax returns is is increased from approximately EUR 1,240 to EUR 25,000.
The registration duty of 0.24% regarding notarial deeds on transfer of debt claims would be abolished upon the approval of the Draft Law.
Transfer of family owned companies
Capital gains on real estate assets related to family owned companies transferred to the next generation should benefit from a tax deferral.
This update only summarizes some of the main changes proposed in the draft law. For further information, please contact the author.