Clarification on losses carry forward and social security deductions

On 10 August 2021, the Luxembourg Tax Authorities issued a new circular I.C.C n° 31 clarifying the application of carried forward tax losses and the deductibility of social security contributions for municipal business tax purposes.

Carry forward tax losses

Luxembourg amended its tax losses carried forward regime with the 2017 tax reform. Losses incurred as of 1 January 2017 can only be carried forward for a maximum period of 17 years. Losses incurred prior to this date are not affected by this limitation and can be carried forward indefinitely. These unlimited losses are deductible first and have priority over losses that are subject to limitation. The Circular reminds that the taxable profit for municipal business tax purposes is computed under the same rules as those applicable for corporate income tax subject to certain adjustments as provided for by the law dated 1 December 1936 (as amended) (the Law of 1936). Losses are only deductible from the taxable profit of the taxpayer if the latter keeps regular accounts for the financial years during which these losses have been incurred.

Deduction of social security contributions

The Circular clarifies the following two issues:

  • Deductibility of mandatory social security contributions – As private expenses, mandatory social security contributions incurred by an individual entrepreneur and the co-owner of a partnership are deductible from their own taxable base only in accordance with §11 of the Law of 1936.
  • Annuality of the deduction of such contributions - Mandatory social contributions are only deductible for the year during which they have been paid. In the absence of taxable profit during a specific year, the mandatory contributions are not deductible if paid during this relevant year and will not be deductible neither during the following years. Therefore, mandatory social contributions have no impact on the determination of the operating losses of a taxpayer nor on their deferral.

Our tax team is at your disposal should you have any question.

Frédéric Feyten, Luxembourg, Managing Partner | Avocat

Delphine Danhoui, Luxembourg Knowledge Lawyer

Ali Ganfoud, Luxembourg, Senior Associate