On 29th February, the Luxembourg Government presented its 2017 tax reform. This is only an announcement, meaning that no agreement has yet been reached by …
On 29th February, the Luxembourg Government presented its 2017 tax reform. This is only an announcement, meaning that no agreement has yet been reached by the Government on the text of the draft law introducing these measures. Therefore, changes may still occur before the final text is presented to Parliament and additional changes may also be made in the course of the legislative process.
Tax measures for companies
- CIT rate – decrease in 2 steps
The Corporate Income Tax (“CIT”) rate will be brought down from 21% to 19% in 2017 and finally to 18% in 2018. Taking the Municipal Business Tax (“MBT”) and the solidarity surcharge into account, it would bring the global corporate tax rate applicable in Luxembourg-city from currently 29.22% down to 27.08% in 2017 and 26.01% in 2018.
A reduced 15% CIT rate will apply to companies with a taxable income which does not exceed EUR 25.000.
- Minimum NWT to be increased
The minimum Net Wealth Tax (“NWT”) applicable to SOPARFIs amounting currently to EUR 3.210 (solidarity surcharge included) will be increased to EUR 4.815 as of 2017.
- Loss carry forward no longer unlimited
While losses generated until 2016 will remain deductible without any limitation, the carry forward of losses generated as from 2017 will be limited to 10 years and to 80% of the taxable income of companies.
- 0,24% tax to be abolished
The 0.24% registration duty applicable to deeds including the assignment of receivables will be abolished in 2017.
Tax measures for individuals
- Final withholding tax on interest to be increased from 10 to 20%
The final withholding tax levied on savings income of Luxembourg residents (“RELIBI”) will be increased from the current rate of 10% to 20% as of 2017.
- Temporary budget balancing tax to be abolished
The temporary budget balancing tax of 0.5% (“impôt d’équilibrage temporaire”) which is currently levied on the monthly gross professional income will be abolished in 2017. This change is in line with the announcement made at the time the tax was introduced, as it was intended to remain in place for only 2 years.
- Tax scales/tax brackets
A new 41% tax bracket will be introduced as of 2017 for taxable income between EUR 150.000 and EUR 200.004 and a new 42% tax bracket will apply to income exceeding EUR 200.004. Currently, the tax rate applicable to the highest tax bracket is 40%.
- Separate tax for married couples as from tax year 2018
As of tax year 2018, married couples will be able to opt whether they would like to continue being taxed collectively in tax class 2 or whether they would like to be taxed separately.
- Changes to tax credits
The tax credit available to employees and pensioners of currently EUR 300 EUR will be increased to EUR 600 EUR for annual income between EUR 936 and EUR 40.000 and it will be decreased progressively to 0 for annual income between EUR 40.000 and EUR 80.000.
The single parent tax credit (“crédit d’impôt monoparental”) will be increased from EUR 750 to EUR 1.500 in 2017 but only in case of an annual income not exceeding EUR 35.000.
- Company car – taxation rules of benefit in kind to be amended
In order to encourage the use of low-polluting cars, the amount of benefit in kind to be taxed for the use of a company car (currently equal to 1.5% of the acquisition cost of the car) will become dependent upon the level of CO2 emissions of the car and will vary between 0.5 and 1.8%.
- Increased tax deductions for contributions to pension schemes
Tax deductions for contributions to pension schemes (“assurance prévoyance-vieillesse”) will be deductible up to an increased amount of EUR 3.200, no matter the age of the individual. As of today, the maximum deductible amount depends on the age of the individual who subscribes to the pension scheme.
- Measures to improve the access to housing
Several tax measures will be introduced which aim to improve access to housing. These include mainly:
– reduced taxation at a ¼ rate on capital gains (compared to the current ½ rate) on the sale of real estate between 1 July 2016 and 31 December 2017
– increased tax deductions for contributions to saving plans for housing under certain conditions from currently EUR 672 to EUR 1.344 for individuals until they reach the age of 40 years old
– maximum amount of tax deductible interest expenses on mortgage loan to be increased
- Measures for family businesses
Capital gains on the transfer of real estate or land belonging to a business may be exempt if the business is transferred to the next generation of a same family.
Keith O’Donnell and Samantha Merle
ATOZ Tax Advisers
