The government of Luxembourg adopted tax reform plans for the year 2017 on 13 July 2016. The proposed changes are in line with the announcements made during the State of the Nation address on April 26, 2016.

The changes announced for corporations are summarized below:

• Reduction in the corporate income tax (CIT) rate the proposal is to reduce the CIT rate from 21% to 18% over the next two years.

• The proposals do not include any changes to the ‘solidarity surcharge’ on the CIT rate or to the rate of municipal business tax payable by companies. The overall CIT rate for companies with a net tax base of more than 30,000 euros (EUR) would be reduced to 19% for FY 2017 and 18% for FY 2018, leading to an overall tax rate of 27.08% for companies in Luxembourg City for FY 2017 and 26.01% for FY 2018 (taking into account the 7% solidarity surcharge on the corporate income tax rate and including the 6.75% municipal business tax rate).

• In addition, the bill introduces a reduced CIT rate of 15% applicable as of financial FY 2017 for companies with a tax base of less than EUR 25,000. For companies with a tax base of between EUR 25,000 and EUR 30,001, the CIT would be EUR 3,750 plus 39% of the tax base above EUR 25,000 (for FY 2017) or 33% of the tax base above EUR 25,000 (for FY 2018).

• Increase in the minimum net wealth tax charge A minimum Net Wealth Tax (NWT) charge was introduced on January 1, 2016 for all corporate entities having their registered office or central administration in Luxembourg. The measures imposing this new charge are very similar to the previous provisions for a minimum CIT charge, which were abolished with effect from the same date. For holding and finance companies whose sum of fixed financial assets, transferable securities, and cash at bank (as reported in their commercial accounts presented in the standard Luxembourg form) exceeds 90% of their total gross assets and EUR 350,000, the minimum NWT would increase from EUR 3,210 (including the solidarity surcharge) to EUR 4,815 (including the solidarity surcharge) as of FY 2017. The minimum NWT applicable to all other corporations having their registered office or central administration in Luxembourg would remain unchanged.

• Restrictions on the use of future losses: the use of losses generated as of FY 2017 will be limited. Losses generated during and after FY 2017 would only be able to be carried forward for a maximum period of 17 years. Losses that arose before FY 2017 are not affected by this time limit. Contrary to what the government initially announced, the deduction would not be limited to 75% of the net taxable profit of each subsequent year.

• The scope of Article 54bis LITL (deferred taxation for foreign exchange gains on certain assets denominated in a foreign currency) would be extended to all companies as of FY 2016.

• As of FY 2017, the tax returns for companies liable to CIT would no longer be allowed to be filed by post. The bill provides that it would be mandatory to file them electronically.

• The 0.24% registration duty due on transfers of claims would be abolished.

• Deferred depreciations would also be introduced: taxpayers could opt to defer the deduction given by the depreciation. These new measures would increase the CIT for a given year and may allow reducing the NWT due (under conditions).

• In order to make inter-generational transfers of family businesses easier, capital gains linked to real-estate assets (both land and buildings) would benefit from tax-neutral treatment.

• R&D would be encouraged through the increase of investment tax credits. Complementary and overall investment tax credits would be increased from 12% to 13% and from 7% to 8% respectively (the tax credit for investments exceeding EUR 150,000 would remain at 2%). The investment tax credit for assets approved for the special depreciation regime would also be increased from 8% to 9% (the tax credit for investments exceeding EUR 150,000 would remain at 4%). In addition, the scope of eligible investments would be extended to include investments made with the European Economic Area (EEA).