Reduction of the corporate income tax rate
Since 1 January 2017, the overall corporate income tax rate of Luxembourg has been reduced from 29.22% to 27.08%. The new rate takes into account the corporate income tax (‘CIT’) as such (reduced to 19% instead of 21%), the solidarity surtax of 7% calculated on the CIT and the municipal business tax of 6.75% for the city of Luxembourg. It should be noted that this rate of 27.08% will be further reduced to 26.01% from 2018.
For companies with a tax base of less than EUR 25,000, a reduced rate of 15% is also applicable from 2017.
Increase of liability for certain managers of VAT-taxable persons
Delegated directors (including ‘de jure’ and ‘de facto’ directors) in charge of the daily management of Luxembourg companies can be held jointly and personally liable in the event of a breach of VAT compliance obligations and non-payment of the VAT due by the company, the daily management of which they are responsible for. Liquidators and trustees are not subject to this liability.
Minimum wealth tax
Since 1 January 2016, the minimum CIT has been replaced by a minimum net wealth tax, the mechanics of which are very similar to CIT. Since 2017, this minimum net wealth tax for holding and finance companies (known as the Soparfis)—the fixed financial assets, intercompany loans, transferable securities and cash at bank of which exceed both 90% of their gross assets and EUR 350,000—is fixed at EUR 4,815 per year (instead of the minimum wealth tax of EUR 3,210 for the taxation year of 2016). The minimum net wealth tax for all other corporations has not changed; in other words, it is EUR 535 for companies with a total balance sheet of EUR 350,000 or less and up to EUR 32,100 for companies with a total balance sheet of more than EUR 30,000,000.£
Tax losses carried forward
Losses incurred after 31 December 2016 in the course of business transactions may only be carried forward for maximum 17 years.
However, losses incurred before 31 December 2016 will remain tax-deductible without any time limitation.
With regard to the order of the deductions, the older tax losses will be deducted first.
Electronic filing of corporate tax returns
Corporate tax returns for taxation year 2017 onwards must be filed electronically such that the legal deadline for the first electronic filing is 31 May 2018.
Abolition of the Ad valorem duty in certain cases
As of 1 January 2017, the mandatory 0.24% ad valorem registration duty that was due upon the registration of agreements that prove the existence of a debt, such as loan agreements or assignments of claims, has been abrogated. On the basis of the so-called ‘théorie de l’usage’, such a registration duty will only be due in case of a deed that is mandatory to register. In practice, this means that a notarial deed mentioning the contribution of a shareholder receivable, for instance, will no longer be threatened by this duty.
Country-by-Country Reporting Law
On 27 December 2016, the country-by-country reporting (‘CBCR’) law (the ‘CBCR Law’) has been published, together with an FAQ issued by the Luxembourg direct tax authorities. The CBCR Law came into effect on 1 January 2017.
Arm's Lenght Principle and Tax Treatment of Companies Engaged in Intra-group Financing Transactions
The law of 23 December 2016 on the budget 20171 introduced into the Luxembourg income tax law dated 4 December 1967 (as amended) (hereafter ‘ITL’) a new article 56 bis related to transfer pricing and, in particular, the technique to be used and the methodology to be adopted for the application of the arm's length principle.
For further information, please contact David Maria, Tax Partner.