2017 Luxembourg Tax Reform - Preliminary proposal

On February 29th 2016, the Luxembourg government released a set of preliminary proposals that forms part of the envisaged 2017 tax reform.

Measures for corporate taxpayers

The first proposed measure is a gradual reduction of the corporate income tax rate, from currently 21%, to 19% for the tax year 2017 and to 18% from the tax year 2018 going forward. For corporate taxpayers resident in Luxembourg City, their aggregate tax rate (including the contribution to the unemployment fund and the municipal business tax) would be reduced from 29.22% to 26.01% which represents a 3 percent reduction.

The other proposed measures include:

  1. Increase of the minimum net wealth tax for financial companies from EUR 3,210 to EUR 4,815;
  2. Limitation of the carry forward period of tax losses (currently the losses can be carried forward for an unlimited period of time);
  3.  Reduced corporate income tax rate for companies having a taxable result of less than EUR 25,000 per year;
  4. Introduction of a tax roll-over mechanism for the transmission of a family business; and
  5. Repealing of the 0.24% stamp duty currently due upon voluntary registration of debt claims

Measures for individual taxpayers

The main proposed measure is the introduction of a new top tax rate of 42% for individuals earning more than EUR 200,000 per year, which coupled with a reshuffling of the lower tax brackets and related rates aims at relieving the tax burden currently carried by the middle-income classes.

The other proposed measures include:

  1. Increase of the RELIBI final withholding tax on interest income earned by Luxembourg resident individuals from 10% to 20%;
  2. Increase (coupled with a degressive scale) of the tax credits available to certain taxpayers (e.g. single parents);
  3. Increase of the allowances for interest expenses in relation with the acquisition of private housing;
  4. Benefits for the acquisition of emission free vehicles; and
  5. Repealing of the temporary 0.5% budget balancing tax.