Significant changes have taken place in the Luxembourg tax landscape in the course of the year 2024, as demonstrated by the intense legislative activity until the last days of 2024, with several measures taking effect as from fiscal year 2025, as summarised below.
Corporate taxpayers
- Corporate income tax reduction by 1% bringing the standard rate from 17% to 16% resulting in an aggregate tax rate of up to 23.87% (incl. municipal business tax and solidarity surcharge) instead of 24.94% for a company with its registered seat in Luxembourg-City (see our July 2024 newsflash).
- Minimum net wealth tax is simplified as from 2025 with only three brackets (EUR 535, EUR 1,605 and EUR 4,815) and reliance only on the total balance sheet size (see our May 2024 newsflash).
- Share redemption tax regime is clarified on the basis of previous case law with specific conditions now set out in the law (see our May 2024 newsflash).
- Opt-out mechanism for dividends and capital gains exemption: as from fiscal year 2025, where an exemption of dividends/capital gains is available under the participation exemption regime solely relying on the minimum acquisition price threshold or where the requirements to obtain a 50% exemption on dividends are met, the taxpayer can opt out of the exemption annually and per participation (see our May 2024 newsflash).
- The rules limiting the deduction of interest expenses are amended as from fiscal year 2025 for entities forming a single entity group.
- Tax credit for investment, applicable to corporate taxpayers and entrepreneurs, is amended as from fiscal year 2024, reaching up to 18% of eligible investments or expenses with specific rules for digital transformation, ecological and energetic transition (see our dedicated newsflash).
- Simplified liquidation and its related tax regime has now been clarified by the Luxembourg direct tax administration by way of a circular (see our dedicated newsflash).
- Mandatory digital filing for tax returns is extended as from fiscal year 2025 to include several withholding tax returns and most notably the withholding tax returns for directors’ fees (see our May 2024 newsflash).
Actively managed ETFs and Private wealth management companies (“SPF”)
- Actively managed ETFs now benefit from a full subscription tax exemption.
- SPFs: the minimum subscription tax is increased from EUR 100 to EUR 1,000 and audit measures are reinforced.
Pillar Two
Luxembourg legislator continued the update of the Luxembourg domestic Pillar Two legislation introduced in 2023 (see our July 2024 newsflash). Amendments include several measures from subsequent OECD administrative guidance issued until July 2024 and have been reflected in the Law of 20 December 2024 (Official Gazette N° 576 of 23 December 2024) with retroactive effect to fiscal years starting 31 December 2023.
The Government aims at maintaining the Luxembourg Pillar Two legislation compliant with OECD requirements and to provide in-scope taxpayers with the highest amount of legal certainty, thus further updates can be expected depending on future developments at OECD level.
Tax measures enhancing the employment market
The following measures apply, unless mentioned otherwise, as from fiscal year 2025 (see our July 2024 newsflash):
- Impatriate tax regime is simplified with a 50% exemption of the salary up to an annual gross salary of EUR 400,000.
- The participative bonus regime providing for a 50% exemption of the bonus paid to employees in connection with the employer’s profits is enhanced with the increase of applicable thresholds.
- Employees entering the workforce can benefit from a 75% tax exemption for the bonus paid by the first Luxembourg employer under a permanent contract for a 5-year period. The employee must be below 30 at the beginning of the year and the annual salary below EUR 100,000.
- A tax credit for cross border workers’ overtime hours subject to taxation in their country of residence is introduced subject to certain conditions which, in practice, should mainly apply to German residents.
- A partially tax-exempt (25%) rent subsidy that can be paid by the employer to its employee below 30 since 1 June 2024, subject to certain conditions (see our dedicated newsflash).
- The tax credit for the hiring of unemployed persons is extended until 31 December 2026.
Tax measures targeting the real estate sectors
The Government adopted several measures to ease existing tensions on the real estate sector (see our February 2024 newsflash):
- Short term targeted measures only for 2024 include (i) an increase by EUR 10,000 of the allowance for registration and transcription duties for the acquisition of the main residence, (ii) a EUR 20,000 allowance for registration and transcription duties for investment in rental properties (sold in future state of completion, “VEFA”) by individuals, (iii) a reduced tax rate for capital gains on Luxembourg real estate held for more than 2 years, (iv) a roll-over of real estate capital gains and (v) a special deduction which adds to the usual amortisation for rented real estate acquired in 2024 in future state of completion.
- Long term measures include (i) an increase of the holding period from 2 to 5 years to benefit from the more favourable long term real estate capital gains regime, (ii) the extension of the favorable regime for disposals and rentals through organism in charge of social housing and (iii) an increase in the tax deductibility of interest expenses in relation with the acquisition of the main residence.
Draft Law No. 8470 has been submitted to the Luxembourg Parliament (Chambre des Députés) on 18 December 2024, in order to extend the short-term measures of 2024 to the first semester of 2025, but it has not been voted yet.
In addition, the 2025 budget law reduced by 50% the taxable basis for registration and transcription duties applicable to real estate acquisitions between 1 October 2024 and 30 June 2025, subject to certain conditions (see our dedicated newsflash).
Tax measures for individuals
As from fiscal year 2025, an adjustment to the tax scale with 2.5 indexation tranches has taken effect together with targeted measures alleviating the tax burden for taxpayers within Class 1a, for single parents, taxpayers with children outside the household and taxpayers paid the minimum tax wage (see our July 2024 newsflash).
Looking forward, the Government is working towards the implementation of a single tax class for individuals with a first project to be issued in 2026.
Tax administration and procedure
In March 2023, the Government had submitted to the Luxembourg Parliament Draft Law No. 8186 aiming at implementing an ambitious reform of Luxembourg tax procedures. Pursuant to initial backlash on the erosion of taxpayer rights foreseen in the draft law, the project has been split in two, and while the first significant part of the reform is still undergoing legislative process, the second part has been introduced through the Law of 20 December 2024 (Official Gazette N° 571 of 23 December 2024), with the following notable measures for taxpayers:
- Payment of the tax liability in instalments: corporate and individual taxpayers can request a payment through instalments of their tax liability directly to the officer in charge of tax collection (receveur). Taxes concerned are corporate income tax, municipal business tax and net wealth tax for corporate entities and income tax for individuals (excluding withholding taxes and tax advance payments). Several conditions apply:
- a specific and motivated requested should be addressed to the tax collector,
- the payment of the initial tax liability must result in considerable difficulties for the taxpayer and
- the tax claim must not be jeopardised by the granting of the additional deadline (the tax authorities can request guarantees). The payment in instalments does not prevent the application of interests for late payments. The relevance of this additional procedure compared to the pre-existing request for a deferred payment, is that the new procedure can take place after the due date for payment.
- Statute of limitations and exit tax: amendments clarify that in case a deferred payment of the tax liability is obtained in the context of the application of an exit tax, the statute of limitation is suspended, thus ensuring that the exit tax liability is not extinguished by the statute of limitation prior to its payment within the standard statute of limitation period.
Other relevant measures notably include the implementation of exchange of information possibilities between the tax authorities and the CSSF as well as the Commissariat aux assurances to enhance their cooperation within their respective fields of supervision.
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