By Law of 23 December 2016, Luxembourg enacted the law implementing the 2017 tax reform (bill of law n°7020). Compared to the initial bill presented to parliament (see our Tax Alert of 5 August 2016), the main key change of the approved bill relates to the limitation of joint and personal liability of managers and directors, for value added tax (VAT) payments of taxable persons.

Main new tax measures

The main new tax measures, which will almost entirely enter into force as of 1 January 2017, are the following:

  • The reduction of the corporate income tax rate to 19% in 2017 and 18% in 2018. The combined corporate tax rate in Luxembourg City will drop from 29.22% to 27.08% in 2017 and 26.01% as of 2018.
  • The Introduction of a 17 year limitation on the use of tax losses as of 2017.
  • The increase of the minimum net wealth tax for SOPARFIs (taxable holding companies) to €4,815 per year.
  • The extension of the tax deferral regime for currency gains or losses provided by Article 54 bis LITL.
  • The increase of tax credit for investments.
  • The implementation of a deferral mechanism for deduction for depreciation. Taxpayers will be allowed to defer and carry forward the annual amount of depreciation on a given asset.
  • The modernization and strengthening of criminal tax provision with the aggravated tax fraud offence and the inclusion of aggravated tax fraud and tax swindling into the list of primary money laundering offenses.
  • The use of loan agreements and receivables will no longer be subject to registration and the 0.24% ad valorem registration duty. The progressive rates will be adapted and two new income tranches taxed respectively at 41% (as from €150,000) and 42% (as from €200,000) have been introduced.
  • The repeal of the 0.5% temporary tax to balance the state budget.
  • The final withholding tax on interest paid to Luxembourg individual residents is doubled to 20%.
  • An option to file individual or joint tax returns for non-resident/resident married couples has been created.
  • Increase and amendment of tax allowances for individuals in relation to, among others, pension and home savings.

Main amendment compared to initial draft bill of law

The draft bill initially provided that the ipso jure or de facto directors/managers, right holders (in case of decease or dissolution without liquidation), liquidators, and trustees would be jointly and personally liable for VAT payments of taxable persons and the Luxembourg VAT authorities would be entitled to issue a call in guarantee decision (décision d’appel en garantie). The draft bill was amended on this point so that now the law, as enacted, is limited to managing directors (administrateurs délégués) or the de jure or de facto managers in charge of the taxpayer's day-to-day management who fail in the performance of their duties (inexécution fautive). Persons who are right-holders (ayants-droits), liquidators, and curators of VAT taxable persons are now excluded from the scope of these new measures.