Luxembourg: Proposed measures, 2017 tax reform

Luxembourg: Proposed measures, 2017 tax reform

The Luxembourg government on 29 February 2016 released an outline of the proposals for tax reform in 2017.

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Corporate tax proposals

For corporate taxpayers, the most significant measure is an expected decrease of the rate of corporate income tax. The corporate income tax rate would phase-down from the current rate of 21% to 19% in 2017, and then to 18% in 2018. For companies in Luxembourg City, this rate reduction would provide for a “global” tax rate of 27.08% in 2017 and 26.01% in 2018. 

Moreover, the corporate income tax rate would decrease from 20% to 15% for corporations with a taxable basis up to €25,000 (to provide tax benefits for start-ups and small enterprises).

Other tax reform proposals concerning corporations include measures that would:

  • Increase the minimum net wealth tax for holding companies from €3,210 to €4,815
  • Introduce certain limits on the ability to carry forward tax losses 
  • Repeal a 0.24% registration fee imposed on notarial deeds documenting the transfer of debt claims
  • Enhance efforts to address tax fraud 
  • Allow for a roll-over of capital gains on real estate assets held by family enterprises
  • Increase allowances for new investments made by agricultural holders

Individual tax proposals

The proposals would affect individual taxpayers, as follows:

  • Restructure the tax rate scale
  • Repeal the 0.5% temporary budget balancing tax 
  • Increase tax credits benefiting individuals (i.e., tax credits for employees, pensioners, and single-parent families)
  • Increase the marginal tax rate on upper income taxpayers to 41% for annual income of €150,000, and to 42% for annual income of €200,000 (for taxpayers in tax class 1)
  • Allow married couples to elect to file individual returns or joint returns
  • Increase the final withholding tax rate on in-scope interests paid out to Luxembourg resident individuals 
  • Make deductible premiums for voluntary pension schemes (3rd pillar) up to €3,200 per year irrespective of the subscriber’s age
  • Increase the deductibility of contributions from home savings and loan schemes for the purchase of immovable property (principal dwelling) 
  • Provide a tax allowance for zero-emission vehicles 

 

Read a March 2016 report prepared by the KPMG member firm in Luxembourg: Proposed measures for the 2017 tax reform announced by the Luxembourg Government

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