The Budget Law for the year 2023 (the “2023 Budget Law”), although falling short of the long awaited substantial tax reform, does provide for some tax amendments that may be of interest to individuals and employers as well as to corporations and investment funds.
The 2023 Budget Law contains measures aimed at improving the administrative burden of taxpayers by extending the deadline for the filing of income tax returns for both corporations and individuals to 31 December of the year following the relevant tax year. Similarly, the deadline for the joint non-revocable application for individual taxation of resident and non-resident partners and for resident spouses has been set at 31 December of the year following the relevant tax year.
The 2023 Budget Law tax measures for corporations and investment funds are focusing on:
- a clarification to Article 168 quarter LITL on the reversal anti-hybrid rules by foreseeing that (i) entities treated as tax transparent under Luxembourg law will not become taxable in Luxembourg if the jurisdiction of the partner of the Luxembourg entity does not tax the partner because of a subjective exemption, (ii) the net income of a reverse hybrid entity is only taxable up to the portion attributable to an associated enterprise; and
- the portion of net assets that a Luxembourg investment fund invests in natural gas and nuclear energy does not benefit from a reduced subscription tax despite the fact that these energy sources are now considered sustainable sources of energy by the European taxonomy.
For individuals and employers, the 2023 Budget Law tax incentives can be summarised as follows:
- a reduction of the salary threshold for an impatriate to be qualified as a highly qualified employee and benefit from the related tax exemptions from EUR 100,000 to EUR 75,000;
- a consideration of tax consolidation for the 50% tax-exempt participatory bonuses paid by employers to their employees so that the amount of the bonus that should not exceed 5% of the profit of the employer will be calculated at the level of the tax consolidation if the employer is part of a tax consolidation;
- an adaptation of the income ranges to benefit from the minimum social wage tax credit to the increase of the minimum social wage;
- an increase in the maximum income to benefit from the single-parent tax credit from EUR 35,000 to EUR 60,000 as well as an increase of the amount of the tax credit from EUR 1,500 to EUR 2,505;
- a limitation of the accelerated depreciation of 4%, per taxpayers to two buildings or parts of buildings used for rental housing, acquired or built after 31 December 2022;
- an abolition of the special real estate allowance for buildings or parts of buildings built, acquired or established as from 1 January 2023.
Finally, the 2023 Budget Law provides for a reduction of the VAT tax rates, except the super-reduced rate that remains at 3%. A super-reduced rate of 3% will apply to the supply of solar panels and their installation and a reduced rate of 8% will now apply to the repair of household appliances and to the sale, hire or repair of bicycles, including electric bicycles.
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