Luxembourg tax update: tax policy of the new government and update on ATAD implementation

On 5 December 2018, the new Luxembourg government was installed. Its policy program for the coming years includes, on the tax side, a further decrease of the Luxembourg corporate tax rate with one percentage point. The previous day, the Luxembourg government also proposed amendments to the currently pending bill of law implementing the EU Anti-Tax Avoidance Directive (ATAD) in Luxembourg law. Please click here for the tax ash prepared by our rm describing the bill of law.

Tax policy of the new Luxembourg government

The corporate tax rate will decrease by one percentage point in 2019. For companies located in Luxembourg city, that should mean an overall corporate tax rate of around 25%. In addition, the new government intends to amend the Luxembourg tax regime for ‘inpatriates’. The existing stock options regime will be gradually abolished and replaced. The proposed changes re ect a commitment to maintain the attractiveness of Luxembourg for businesses. In an environment marked by Brexit and an increased focus on substance, the plans aim at facilitating the hiring of highly skilled staff in Luxembourg. This should, in particular, help companies with R&D activities and those active in the technology and digital sectors. In addition, this should enhance the attractiveness of Luxembourg as a hub for investment funds and insurance companies.

At an international level, Luxembourg will not support the plans for a nancial transaction tax as discussed between several EU Member States. Furthermore, Luxembourg favours a global, OECD-driven initiative on the taxation of the digital economy.

ATAD implementation - amendments

The government made minimal amendments to the pending bill of law implementing ATAD despite more extensive suggestions from the Luxembourg State Council (Conseil d’Etat). The government mainly clari es some aspects of the Controlled Foreign Companies (CFC) rules and the grandfathering in the interest limitation rule. In addition, the government proposes to extend the application of the capital gains exemption (i.e. exemption of capital gains up to the amount of CFC income previously picked up at Luxembourg level) to cases of indirect disposal of a CFC. The interest limitation rule, CFC rules and intra-EU anti-hybrid rules are still scheduled to apply to tax years starting on or after 1 January 2019.

Related : Loyens & Loeff Luxembourg S.à r.l.

[+ http://www.loyensloeff.com]

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