Luxembourg Wealth Tax – Introduction
On 23 May 2024, the Luxembourg government introduced a bill of law and a draft of Grand Ducal regulation to address several key tax issues.
These proposals aim to:
- Amend the minimum net wealth tax rules to comply with a Constitutional Court decision;
- Clarify the tax treatment of share class redemptions following recent court judgments
- Provide taxpayers the option to waive the participation exemption regime under specific conditions.
Once enacted, these changes will enhance legal certainty for a wide range of taxpayers.
Background
The Luxembourg government aims to address specific case law developments and increase legal certainty with these legislative amendments.
Minimum Net Wealth Tax (NWT)
Effective 1 January 2025, the minimum NWT rules will be amended to align with the Constitutional Court ruling 185/23 from 10 November 2023.
The current two-tier NWT system will be replaced with a single system based on the taxpayer’s balance sheet total:
- Taxpayers with a balance sheet not exceeding EUR 350,000 will be liable for a minimum NWT of EUR 535.
- For balance sheets between EUR 350,000 and EUR 2,000,000, the minimum NWT will be reduced to EUR 1,605 from the current EUR 4,815.
- Taxpayers with balance sheets exceeding EUR 2,000,000 will face a maximum NWT of EUR 4,815, down from the previous maximum of EUR 32,100.
Other measures
Clarification on Share Class Redemptions
In response to 2023 court rulings, the bill clarifies that redeeming an entire class of shares qualifies as partial liquidation under article 101 of the income tax law if the following conditions are met:
- The share class is canceled within six months of repurchase.
- Share classes were established at incorporation or during a capital increase.
- Each share class has distinct economic rights, as defined in the articles of association.
- The redemption price reflects the fair market value at the redemption date and is determined based on the articles of association.
Additionally, if the redeemed share class is held by an individual with significant participation, their identity must be reported in the annual tax return.
Waiving Tax Exemption on Dividends and Capital Gains
Taxpayers will have the option to waive the 50% dividend exemption and full participation exemption on dividends and capital gains if specific conditions are met.
This change aims to reduce mismatches between Luxembourg and other jurisdictions’ participation exemption regimes and to help taxpayers manage tax loss carryforwards effectively.
The waiver must be made annually and separately for each participation, starting from the tax year 2025.
Electronic Filing of Withholding Tax Returns
From 1 January 2025, Luxembourg will mandate electronic filing for withholding tax returns on directors’ fees and wage withholding tax, streamlining tax compliance and assessment procedures.
Conclusion
The bill will be debated in Parliament and may be amended before the expected vote later in 2024.
Final thoughts
For further information on Luxembourg Wealth Tax, or Luxembourg taxes more generally, then please get in touch.