Luxembourg 2017 Tax Reform: Bill of Law published

On 26 July 2016, a bill of law introducing the 2017 tax reform was submitted to Luxembourg Parliament. The bill proposes a series of tax measures relevant for companies and individuals. These measures largely correspond to the ones announced in February of this year when the main lines of the 2017 tax reform were presented by the government (we refer to our tax flash of 29 February), such as:

  • the progressive decrease of the headline corporate income tax (CIT) rate from 21% now to 18% as from 2018. For corporate entities, the consolidated tax rate (including the 7% contribution to the employment fund calculated on the CIT rate and municipal business tax) in Luxembourg City will thus decrease from the current 29.22% to 27.08% in 2017 and to 26.01% as from 2018;
  • the introduction of a time limit (17 years) to carry forward losses incurred after 31 December 2016. The initially announced restriction to the compensation of losses to a maximum of 80% of the taxable income was eventually not retained;
  • the increase of the minimum annual net wealth tax for companies whose balance sheet total is for at least 90% composed of financial assets from EUR 3,210 to EUR 4,815;
  • the increase of tax incentives for investments and the introduction of tax incentives for green mobility; and
  • the amendment of the progressive tax scale applicable to individuals and the increase of the top marginal rate from the current 40% to 42% (that would become applicable as of EUR 200,004 annual income).

Additional measures include:

  • the possibility to defer the depreciation and amortization of assets (but not to accelerate it). Deferral would be permitted until the financial year in which the useful economic life of the asset comes to an end at the latest. This optional deferral may be advantageous in the context of the so-called credit of CIT liability to the net wealth tax liability;
  • a roll-over of foreign exchange gains recognized by a taxpayer whose equity is expressed in a currency other than the euro, on its non-euro denominated assets, regardless of its business. The current restriction of the roll-over to banks, insurance companies and companies trading in financial assets will be removed. Presently, it is proposed to make the roll-over available to any business having its equity expressed in a currency other than the euro;
  • mandatory electronic filing of tax returns for resident companies;
  • the personal liability of directors, liquidators etc. for the VAT debts resulting from non-payment of VAT or for not being compliant. These persons may be made personally liable for the payment of VAT due. If enacted, we expect that this measure will have a high impact on the activities and liability of directors appointed by Luxemburg based companies.

The bill of law has to be adopted by Parliament. If adopted, the above mentioned measures will apply as from the tax year 2017, except for the roll-over of currency gains (applicable as from the tax year 2016) and the VAT related measures (applicable as from 1 January 2017).

We will keep you informed on any further developments. Please contact your trusted adviser at Loyens & Loeff in case you have any queries.