Luxembourg: New tax measures announced for 2017 tax reform

Luxembourg: New tax measures announced

Luxembourg’s prime minister on 26 April 2016 delivered the “state of the nation” speech, during which the prime minister highlighted some of the proposed changes to the Luxembourg tax system to be implemented in 2017.

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Most of the measures had already been announced by the government in February 2016, including a progressive decrease of the rate of corporate income tax, from 21% to 18% (resulting in a “global” tax rate of approximately 26% in 2018). Other actions pledged by the government in February 2016 targeted not only the taxation of corporations, but also of individuals. 

Additional measures for corporations

To remain competitive and to stimulate corporate investments in Luxembourg, in particular in the innovation sector, an increase in investment tax credit rates by one percentage point has been proposed. Consequently, the “complementary” and “global” investment tax credits would be increased from 12% to 13% and from 7% to 8%, respectively (while the current 2% rate for investments exceeding €150,000 would remain unchanged). The investment tax credit for assets approved for the special depreciation regime would correspondingly be increased by one percentage point, from 8% to 9% (while the current 4% rate for investments exceeding €150,000 would remain unchanged).

Concerning proposed limitations to the tax loss carryforward rules, tax losses incurred as from the tax year 2017 would only be offset against 75% of the annual taxable profit realised in future years, and the carryforward period would be limited to 17 years.

Additional measures for individuals

Other measures proposed for individual taxation, in addition to those announced in February 2016, include: 

  • The tax credit granted to single parents would only be reduced if the annual child “alimonies” exceed €2,208 (instead of €1,920).
  • The deductible amount of education allowance for children not part of the household would increase, from €3,480 to €4,020.
  • There would be an increase in the value of lunch vouchers from €8.40 to €10.80. 
  • There would be an increase in the maximum tax amount deductible for combined childcare costs, housekeeping costs, and home assistance for the disabled, from €3,600 to €5,400 per year.
  • The maximum tax amount deductible for contributions to qualifying home saving schemes would increase, from €672 to €1,344, for individuals aged up to 40 years.
  • Equality of tax treatment would be introduced between cross-border workers and residents living in Luxembourg with respect to the applicable tax classes and tax allowances (if applicable).

 

Read an April 2016 report prepared by the KPMG member firm in Luxembourg: New tax measures announced for the Luxembourg 2017 tax reform

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