March 2016 | The Luxembourg Tax Reform

On the 29th of February 2016 the Luxembourg Government announced a new tax reform that will be implemented in 2017. There will be some additional measures announced during the next months. 

Corporate

CIT | Corporate Income TAX (“CIT”) will progressively be reduced from the current 21% to 19% in 2017, to 18% in 2018. This will lead to a maximum rate of 26.01% in 2018 for CIT, incl. municipal business tax and the contribution to the employment fund.

Companies whose annual net profits do not exceed €25,000 will be taxed at a reduced CIT rate of 15% (currently at 20%).

MNWT | The minimum net wealth tax (“MNWT”) for SOPARFIs (sociétés de participations financières) will be increased from €3,210 to €4,815.

Fiscal Losses | The rules propose that a Luxembourg company will be able to carry forward losses up to 10 years and that the losses should not exceed 80% of the taxable income of the company.

Family Businesses | Capital gains on real estate or land can be exempted if transmitted to the next generation of a same family. Furthermore will the allowance for farmers for new investments potentially be raised from €150,000 to €250,000.

Registration Duties | The proportional registration duty of 0.24% that is being levied on the registration of a transfer of a claim, will be abolished.

Individual

Equalisation Tax | The temporary (from 2015 to 2016) equalisation tax of 0.5%, that is levied on professional and substitute income or on income from private wealth realised by individuals aimed to equalise the Luxembourg budget, will be abolished.

Income Tax

  • To enhance social justice, the income tax rate has been rebalanced so that low income is less taxed.
  • 0% for a net annual income below €11,265.
  • Increase from 40% to 42% for an annual net income exceeding €200,000
  • An intermediate rate will be introduced, 41% for an income between €150,000 and €200,000.

Other

  • Withholding tax on interest paid will be increased from 10% to 20%
  • Introduction of the optional individual tax return
  • Increase of the tax credits for employees, pensioners and single parents
  • Increase of the deduction cap for contributions to a house purchase below 40
  • Increase of deduction cap for interest on mortgages