On 29 February 2016 the Luxembourg government presented the outline of the much anticipated tax reform. The reform should relieve taxpayers for an aggregate annual amount of EUR 400-500 million. It focuses significantly more on individuals than on companies and tries to bring together the objectives of financial sustainability, fairness and competitiveness. The government plans to have 1 January 2017 as effective date for the tax reform.
- Corporate taxation: decrease of the headline rate and new rules on loss carry forward
- Decrease of the corporate income tax rate from 21% to 19% in 2017 and 18% in 2018. The total combined tax rate (including municipal business tax in Luxembourg City and the contribution to the employment fund) will correspondingly decrease from the current 29.22% to 27.08% and then 26.01%. Furthermore, the tax rate will be set at 15% for companies which have a taxable income not exceeding EUR 25,000.
- For companies whose assets for at least 90% consist in financial assets, minimum (net wealth) tax will increase from EUR 3,210 to EUR 4,815.
- Loss compensation is to be limited to 80% of taxable income. The loss carry forward period is to be limited to a maximum of 10 years. The limitations would not apply to pre-2017 losses.
- To facilitate the transmission of businesses to the next generation, capital gains on real estate assets will in principle be exonerated from tax if the business is continued.
- Abolition of the 0.24% registration tax for registered transfers of receivables.
- Individuals: increased progressivity, relief for lower and middle income classes
- The progressivity of the tax scale will be revised. The top marginal rate will increase from 40% (as of EUR 100,000 annual income) to 42% (as of EUR 200,000 annual income), but at the same time the lower income brackets will be taxed less. The 0.5% temporary budget balance tax on income will be abolished.
- The tax credit for employees will double for low and middle income taxpayers to EUR 600/year but will disappear for those earning more than EUR 80,000. Certain tax allowances will be increased.
- The 10% withholding tax on interest paid to resident individuals will be increased to 20%.
- Measures to facilitate access to housing and green mobility are also included. Valuation rules for the taxation of lease cars as in-kind employment benefit will evolve (clean cars will be taxed less; polluting cars more). As to housing, measures both address demand and offer (e.g., a temporary reduced tax rate on capital gains on immovable property).
- Criminal tax law will be modernized and updated, amongst others by implementing of GAFI recommendations and EU directive AML IV.
The government will lay down these proposals in bills of law that will have to be enacted by parliament.