Fiscal reform proposals recently announced by the Luxembourg government include changes to the country’s corporate and personal tax frameworks.
Late last month, the Luxembourg government announced proposed changes to the country’s corporate and personal tax frameworks, including a progressive reduction (in two steps) of the corporate income tax (CIT) rate from 21% to 18%.
Following are the main aspects of the proposed measures that would impact corporations. At this stage the measures are yet to be outlined in full. Their implementation from 1 January 2017 would only proceed if formalised in a parliamentary bill, and subsequently voted through.
- Reduction of the corporate income tax rate
It has been proposed that the CIT rate would be reduced to 19% in 2017, and 18% in 2018. The additional tax surcharge of 7% levied on CIT as a contribution to the employment fund and the municipal business tax (MBT) rates would remain unchanged, leading to a combined tax rate (ie. CIT + contribution to employment fund + MBT) of 27.08% in Luxembourg city for fiscal year 2017, and 26.01% for fiscal year 2018.
For small and start-up companies for which taxable income does not exceed €25,000, the CIT rate would be reduced to 15% for 2017, leading to a combined tax rate of 22.80% in 2017 for these companies.
- Increase of the minimum net wealth tax (NWT)
For “SOPARFIs”, ie. holding and financing companies for which the sum of fixed financial assets, receivables from affiliated undertakings, transferable securities and cash at bank exceeds 90% of their total gross assets and a total amount of €350,000, the minimum NWT introduced in 2016 and amounting to €3,210 is proposed to be increased to €4,815 from 2017.
- Limitations on the use of future tax losses
There is a proposal to limit to 10 years the deferral of tax losses generated as from 1 January 2017, and such losses would only be available to offset the taxable income of the subsequent period up to 80% of the taxable income of each period.
The tax losses carried forward from previous years should not be affected by these limitations.
In order to facilitate the transfer of family businesses to the next generation, capital gains related to the real estate assets (land and buildings linked to the business) would benefit from a tax exemption. This will require further analysis to identify impacts/ opportunities.
Indirect tax (VAT)
- Change of filing platform for electronic submission of VAT returns
As of 1 January 2017 it will be mandatory to use the eCDF platform for the electronic submission of VAT returns and European Sales Lists (ESL). The year 2016 is a transition period and the filing of monthly, quarterly and annual returns for 2015 and 2016 will be available in parallel in both systems eTVA and eCDF.
- Luxembourg VAT on directors’ fees
The Director of the Luxembourg VAT authorities – Romain Heinen – has confirmed that Luxembourg VAT should apply to the services performed by directors. He confirmed that the approach was already taken by the VAT authorities for prior years and stressed that theoretically, no VAT exemption applies to director fees.
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Our tax compliance experts in Luxembourg are closely monitoring the progress of the government’s fiscal reform proposals and can assist companies with accurate tax compliance reporting, in line with legal requirements once tax framework changes are formalised.
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