Tax Cuts for Corporations and Individuals – Introduction
On 17 July 2024, the Luxembourg government unveiled a new bill proposing a range of tax cuts aimed at benefiting both corporations and individuals.
This legislative move aligns with the current government’s commitments for the 2023-2028 period, promising substantial fiscal relief and various other economic benefits.
Corporate Tax Reductions
Corporate Income Tax Rate Reduction
Starting from the fiscal year 2025, the corporate income tax rate will decrease by one percentage point, bringing it down to 16%.
For income up to €175,000, the reduced rate will be adjusted from 15% to 14%.
This adjustment will see the consolidated corporate tax rate in Luxembourg City (inclusive of the solidarity surcharge and municipal business tax) fall from 24.94% to 23.87%.
Reforms for Private Wealth Management Companies
Private wealth management companies, known as “société de gestion de patrimoine familiale” (SPF), will see an increase in the minimum annual subscription tax from €100 to €1,000.
Additionally, the determination of the debt portion for the subscription tax base will now be based on the balance sheet at the beginning of the fiscal year rather than January 1st.
Moreover, the government aims to clarify the procedure for withdrawing SPF status in cases of legal non-compliance. Severe breaches can lead to fines up to €250,000 and potential withdrawal of SPF status by the director of the indirect tax authorities (AED) if not remedied within six months. These changes will take effect for breaches occurring after the law’s enactment.
Exemption for Certain ETFs
The bill also includes a provision to exempt actively managed exchange-traded undertakings for collective investment in transferable securities (actively managed UCITS – ETF) from the subscription tax.
Individual Tax Relief Measures
Enhancing Talent Attraction
To bolster Luxembourg’s attractiveness to talent, the government plans to amend the profit-sharing bonus (“prime participative”).
The tax-exempt portion of this bonus will increase from 25% to 30% of annual remuneration, and the total distributable amount will rise from 5% to 7.5% of employer profits.
The tax regime for impatriates will be modernized, introducing a 50% tax exemption on annual gross remuneration up to €400,000, replacing the existing regime that primarily offers tax benefits on certain benefits in kind and impatriation bonuses.
Additionally, a new “young employee bonus” will provide a sliding-scale tax exemption for employees under 30 with annual gross salaries up to €100,000. The bonus, capped at €5,000, will be available only with the first employer and for up to five years.
Income Tax Adjustments and Credits
Starting in fiscal year 2025, the income tax scale will be adjusted to reflect recent inflation and indexed salary increases, significantly reducing the tax burden on individual taxpayers.
Tax credits for single parents will be increased, and a new overtime tax credit (CIHS) will be introduced for employees paid for overtime, excluding civil servants.
This measure aims to resolve tax issues for German cross-border workers who are taxable on overtime earnings in Germany.
Additionally, the maximum allowance for dependent children not living in the household will be raised.
Tax Cuts for Corporations and Individuals – Conclusion
Luxembourg’s proposed tax cuts represent a significant shift in the fiscal landscape, promising substantial benefits for both corporations and individuals.
By reducing corporate income taxes, reforming the tax regime for private wealth management companies, and introducing new tax relief measures for individuals, Luxembourg is positioning itself as an attractive destination for businesses and talent alike.
These changes, aligned with the government’s long-term commitments, are set to take effect from 2025, offering broad-based economic relief and fostering a more competitive and inclusive economic environment.
Final thoughts
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