The Luxembourg administration for direct taxes published Circular which provides explanations regarding the 2016 changes of the Net worth tax (NWT), on 16 June 2016. A reduced rate of 0.05% applies for taxable net worth above EUR 500 million from 1 January 2016. The rate is 0.5% for up to EUR 500 million. NWT is not levied in the opening year of existence of the company, or in the year in which the company migrated to Luxembourg. In addition, a minimum NWT is introduced to replace the former minimum corporate income tax. The tax is equal to EUR 3,210 for companies the assets of which are comprised for at least 90% of financial assets. The minimum NWT is reduced to EUR 535 for such companies where the sum of their financial assets does not exceed EUR 350,000.

Tax exempt reserve

Under the Luxembourg NWT it is possible to allocate an amount of 5 times the reduction to a tax exempt reserve, which has to be kept for a minimum period of 5 years. The reserve can be distributed to the shareholders. If the 5 year period is not respected, the reduction will be recaptured by increasing the taxable base with 1/5 of the taxable reserve in the year of the premature distribution.

Tax Reduction

A reduction can be claimed for the Net worth tax. This reduction for resident companies is equal to the amount of Corporate Income Tax due for the year concerned but the NWT due cannot be below the minimum amount. For non-resident companies, which are not subject to the minimum WHT it is reduced by the amount of CIT.

Groups

The group regime does not apply for the Net worth tax. Each group has to claim a reduction of the NWT separately, but the amount of the reduction claimed by all group companies may not go above the amount of the CIT due by the group for the earlier year.