On 14 December 2016, the Luxembourg parliament voted (first vote1) the 2017 tax reform bill (the Bill), which includes measures affecting individual as well as corporate taxpayers.2 The entry into force period varies depending on the measures, and will range between the fiscal year 2016 and the fiscal year 2018.
The most significant measures of the Bill which are relevant to international investors are developed hereunder. Unless otherwise specified, they will apply as from fiscal year 2017.
Reduction of the corporate income tax rate
The Luxembourg corporate income tax rate applicable to entities with a taxable income of EUR 30,000 or more will decrease from 21 percent to 19 percent effective as from fiscal year 2017 (i.e. for companies established in Luxembourg city, the aggregate corporate tax rate will be 27.08 percent). The rate will be further decreased to 18 percent as from fiscal year 2018 (i.e. for companies established in Luxembourg city, the aggregate corporate tax rate will be 26.01 percent).3
Tax losses carried forward - limited period
For corporate income tax and municipal business tax purposes, tax losses incurred as from 1 January 2017 will be available for carry forward (with the possibility of a 100 percent offset of yearly profits) for a period of 17 years. Tax losses incurred until 31 December 2016 can be carried forward for an unlimited time. The use of the tax losses carried forward will have to be done following the first in, first out principle.
Increase of the minimum net worth tax
The minimum net worth tax for Luxembourg companies with financial assets (including transferable securities, loans, bank deposits) representing more than 90 percent of their total balance sheet (and total assets higher than EUR 350,000) has been increased from EUR 3,210 to EUR 4,815 (inclusive of the 7 percent solidarity surcharge).
Additional incentives for investments in depreciable tangible assets
In order to encourage investments, the Luxembourg tax credits for investments in depreciable tangible assets have been increased. Hence, the 12 percent tax credit available for additional investments will be increased to 13 percent and the 7 percent tax credit available for global investments will be increased to 8 percent and will now apply to investments made (and meant to be maintained there permanently) and physically set up in a State of the European Economic Area.
Deductibility of certain provisions booked by financial institutions no longer available
As from fiscal year 2016, provisions booked by financial institutions to arrange for a guarantee of certain bank deposits will no longer be tax-deductible.
Option to defer deductions in relation to amortization
Upon request (to be made with the corporate income tax return), tax payers will have the possibility to defer part or all of the deduction for amortisation on assets of a given year. The available amount may be carried forward and, if not used before, must be fully used in the last year of the usual amortisation period. This measure gives tax payers more flexibility, especially with respect to the reduction of the net worth tax liability.
Extension of the scope of taxpayers eligible for the roll-over relief on foreign exchange gains
The scope of eligible entities which may opt for the temporary immunization of foreign exchange gains on certain assets is extended to all companies which have their capital in a foreign currency, whereas the current regime was exclusively available to certain taxpayers i.e. credit institutions, insurance and reinsurance undertakings.
Electronic filing of corporate tax returns
To speed up and render administrative processing of tax returns and tax assessment notices more effective and less burdensome, electronic filing of corporate income tax, municipal business tax and net worth tax returns will become mandatory for corporate taxpayers.
Amendments to the Luxembourg RELIBI law4
The flat and final withholding tax, levied on qualifying interest payments under the RELIBI law to Luxembourg individual resident taxpayers, has been increased from 10 percent to 20 percent.
Amendments to the Luxembourg VAT law
As from 1 January 2017, ipso jurede facto managers will be personally and jointly liable to ensure that the company(ies) they manage meet their legal obligations, in particular the payment of the VAT due. A joint liability has been introduced with regard to the payment of the VAT for managers of companies which have not met their VAT obligations. The same joint liability is introduced for beneficial owners, liquidators and curators.
Penalties that may be fixed by the VAT authorities in case of non-compliance with the VAT obligations have been increased. The current maximum fixed penalty of EUR 5,000 has been increased to EUR 25,000. Finally, in case a taxable person evades the payment of VAT or obtains a refund of the VAT in a non regular manner, the penalty has been increased from 10 percent to 50 percent of the relevant amount.
In case of aggravated tax fraud, the penalty will consist in one to three months of imprisonment together with a penalty comprised between EUR 25,000 and six times the amount eluded or wrongly reimbursed.
Amendments to proportional registration duty
The 0.24 percent proportional registration duty applicable on notarial deeds referring to a transfer of debt has been repealed.
Amendments to the criminal tax law
Three different kinds of tax offences will be distinguished: (i) the simple tax fraud, (ii) the aggravated tax fraud, and (iii) the tax swindle. While simple tax fraud will be handled by the competent tax administration, under judicial control, both the aggravated tax fraud and tax swindle will constitute criminal offences handled by the criminal court. The law introduces thresholds to distinguish simple tax fraud from aggravated tax fraud.
Overall, the law is in line with the announcements made at the beginning of the year and the will to sustain an attractive business environment. The tax reform is clearly in line with the current international trends, encouraging investments while tackling tax abuse.
1 The law is still subject to the State Council’s confirmation that no second vote is required and will enter into force after enactment and publication.
2 Bill of law 7020
3 The aggregate corporate tax rate includes the new corporate income tax rate, the 6.75 percent municipal business tax rate (for companies established in Luxembourg city) and the 7 percent solidarity surcharge.
4 Law of 23 December 2005