Luxembourg 2024 Budget Bill

On 6^th March 2024, the Luxembourg government filed the 2024 budget bill (“Budget Bill”) and announced that it will continue to work towards the implementation of a tax policy aimed at strengthening the competitiveness of the economy and increasing household purchasing power.

While certain measures have already been legislated on earlier this year, the Budget Bill has recalled the 2024 tax agenda of the government and introduced excise taxes for certain previously untaxed products assimilated to tobacco.

Luxembourg 2024 tax agenda

• Implementation of the 2023-2028 coalition program: a series of tax measures in favour of the Luxembourg real estate sector have already been issued in February 2024 (see our previous newsflash) and the investment tax credit have been extended to investments and expenses incurred in the context of digital transformation as well as energy and ecological transition (see our previous newsflash). Further measures will be taken during 2024 notably to reduce the tax burden of taxpayers belonging to class 1a (mainly widowed individuals, taxpayers with children and taxpayers aged at least 65). As a reminder, the government is working on setting up a single taxation class for individual taxpayers and the proposal should be published in 2026. Regarding corporate income tax (“CIT”), the coalition program included a reduction of applicable rate to reach OECD countries’ average rate. The Minister of finance announced a potential 1% reduction of the CIT rate as from 2025, with more details coming in the next months.
• Continuation of Pillar 2 implementation: the Luxembourg government remains involved in the Luxembourg implementation of Pillar 2 (see our previous newsflash). As a reminder, Luxembourg already implemented Pillar 2 with the income inclusion rule and qualified domestic top up tax applicable as from 1^st January 2024 and the undertaxed payment rule applicable as from 1^st January 2025. Measures introduced by the OECD December 2023 administrative guidance have not been integrated yet.
• Involvement in EU tax initiatives: (i) Unshell Directive proposal, also known as ATAD III, pertaining to the minimum level of substance of certain EU companies (see our previous newsflash), (ii) BEFIT Directive proposal aimed at implementing a harmonized tax base for large MNEs active in the EU and simplifying certain transfer pricing compliance for low-risk distributors and contract manufacturing (see our previous newsflash), (iii) HOT Directive proposal aimed at simplifying the tax compliance obligations of SMEs operating in other EU member states through permanent establishments (see our previous newsflash), (iv) the EU Commission initiative “VAT in the Digital Age” aimed at (a) modernising VAT reporting obligations and introducing e-invoicing for cross-border transactions, (b) addressing the challenges of the VAT treatment applicable to the platform economy, and (c) avoiding the need for multiple VAT registrations in the EU (see our previous newsflash), and (v) EU initiatives in the field of energy taxation.
• Involvement in OECD tax initiatives: OECD Pillar One pertaining to a tax base reallocation towards consumers countries for in-scope MNEs (see our previous newsflash).

Taxation of emerging products assimilated to tobacco

The Budget Bill also introduced taxation though excise duty for new products similar to manufactured tobacco: e-cigarettes (e-liquids: maximum of EUR 200 per litre), nicotine sachets (maximum of EUR 100 per kilogram) and heating tobacco (maximum of 41.50% of retail price for the ad valorem part and a maximum of EUR 35 per kilogram).

These products will be subject to excise duty as from 1^st October 2024 to leave sufficient time to manufacturers to take appropriate compliance steps.