Luxembourg: Parliament adopts 2017 tax reform

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The Luxembourg Parliament adopted the 2017 tax reform (parliamentary document n°7020) on 14 December 2016 which introduces new tax measures affecting both individual and corporate taxpayers. The publication of the law is expected to be made in the coming days with entry into force from 1 January 2017.

Tax measures applicable to corporations:

 Reduction of corporate income tax rate: The corporate income tax rate currently stands at 21%. It will be reduced to 18% over the next two years (19% for 2017 and 18% for 2018). However, the rates applicable to the municipal business tax and the solidarity surcharge will not be amended.

As a result, the global combined corporation tax rate will stand at 27.08% in 2017 and 26.01% from 2018 for companies with taxable profits exceeding EUR 30,000 in Luxembourg-City, taking into account the municipal business tax and the solidarity surcharge.

Limitation of the use of losses carry-forward: Luxembourg tax law currently provides that Luxembourg companies may carry their losses forward indefinitely and off-set them against any future profits. The 2017 tax reform provides that losses generated during and after 2017 will only be carried forward for a maximum period of 17 years. Losses that have been realized before 2017 will remain unaffected by this time limit.

Abolition of tax on transfers of claims: From 2017, registration duties should only be levied on mandatory registration deed. Therefore, the 0.24% registration duty due on notarial deeds documenting the transfer of debt agreements (notably in case of contribution in kind of such claims to the share capital) will be abolished.

Increase of the minimum net wealth tax: From 2017, the minimum net wealth tax applicable to Luxembourg corporate taxpayers holding financial assets representing (i) more than 90% of their total balance sheet (e.g., fixed financial assets, intercompany loans, transferable securities and cash at bank) and (ii) more than EUR 350,000, will be subject to a fixed minimum net wealth tax at an increased amount of EUR 4,815 from the fiscal year 2017 (EUR 3,210 for 2016).

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