The Luxembourg Parliament adopted the Tax Reform Law on 14 December 2016, aiming at increasing companies’ competitiveness and bringing more stability and predictability in tax matters.
Although the Tax Reform Law introduced mainly changes in the personal income tax regime, a few measures concern corporate tax, the most important of which are the following.
a. Reduction of income tax rates
The corporate income tax rate decreases to 19% for tax year 2017 and to 18% as from 2018. This leads to an aggregate income tax (corporate income tax plus municipal business tax) of 27.08% (in 2017) and thereafter of 26.01% (as from 2018), for companies in Luxembourg city.
Regarding small companies with a taxable profit under EUR 25,000, a reduced rate of 15% will apply (whereas a 20% rate applied until 31 December 2016 on profits under EUR 15,000). Taxable profits ranging from EUR 25,000 to EUR 30,000 will suffer a flat tax of EUR 3,750 plus 39% (to be decreased to 33% as from tax year 2018) of the income over EUR 25,000.
b. Limitation of tax losses carried forward
As from tax year 2017, tax losses can be carried forward for a period of maximum 17 years. Tax losses incurred before 1 January 2017 can still be carried forward indefinitely in time. Furthermore, the law provides for a FIFO system (first-in, first-out), meaning that the oldest losses are used first to offset taxable income in any future year.
c. Increase of the minimum tax
The Tax Reform also increases the minimum net wealth tax to EUR 4,815, for companies with financial assets of a value exceeding EUR 350,000 and which represent more than 90% of their total balance sheet.
d. New sanctions
Finally, the Tax Reform has strengthened the administrative and criminal sanctions in all tax matters. A fine of minimum 5% and up to 25% of the taxes avoided or unfairly reimbursed is now applied in case of incomplete or inaccurate information deliberately provided in the tax returns or in case of deliberate absence of filing of a tax return, while the penalty applied by tax authorities to compel taxpayers to comply with their filing obligations can now reach EUR 25,000. Further, the law now distinguishes three different levels of tax fraud: simple fraud, aggravated fraud and tax swindle. The different offences give rise to the application of a scale of monetary sanctions and both the aggravated fraud and the tax swindle are also criminally sanctioned.
