The Luxembourg government on 29 February presented the principles of the next tax reform which is expected to take effect as from 1 January 2017. The majority of the measures announced so far will impact upon individuals (e.g. the creation of a new tranche of imposition for personal income tax, the increase of ceilings for various tax deductions, the increase of withholding tax on income from savings of Luxembourg individual resident (RELIBI) to 20%).
With respect to companies, the main measures can be summarised as follows:
1. Reduction of the Corporate Income Tax (CIT) rate
The CIT rate will be progressively reduced progressively over 2017 and 2018. The current CIT rate is 21% and will be reduced to 19% in 2017 and to 18% in 2018 in order to improve the competitiveness of enterprises. Moreover, the CIT rate will be decreased from 20% to 15% for small enterprises whose annual taxable income is less than EUR 25,000.
2. Minimum net worth tax
The minimum annual net worth tax, implemented in January 2016 and replacing the old minimum flat CIT, will increase for Soparfis to EUR 4,815 (including the employment surcharge).
3. Limitation of the use of tax losses carried forward
The use of tax losses carried forward on realised losses as from 2017 will be limited. Although it is not yet confirmed, it is expected that this entails a 10 years limitation combined with a limitation of the amount of tax losses carried forward.
4. Exemption of capital gains in case of family business transfers
In order to facilitate the transfers of family businesses from one generation to the next, the capital gain realized on real estate assets (grounds or buildings) owned by the relevant company will be exempt. We shall keep you informed of further developments concerning this forthcoming tax reform.