Luxembourg’s tax landscape is undergoing significant changes in 2025, with reforms affecting individuals and businesses alike. Whether you’re an entrepreneur, employee, or investor, these 10 updates are key to shaping your fiscal strategy. Stay informed to make the most of the year ahead.

  1. Corporate Income Tax Rate Cut
    As of the fiscal year 2025, Luxembourg’s corporate income tax rate drops from 17% to 16%. The combined corporate income tax rate for corporate taxpayers in Luxembourg City consequently falls from 24.94% to 23.87%, offering savings for companies expanding or operating in the Grand Duchy. Please note however that the rate might differ from municipality to municipality depending on the municipal business tax rate applicable.

  2. Simplified Minimum Net Wealth Tax
    The determination of the amount of minimum net wealth tax payable by corporate taxpayers is now based on their total balance sheet value, with minimum amounts ranging from EUR 535 to EUR 4,815. This simplification, effective from the fiscal year 2025 onwards, resolves constitutional issues and ensures fairer treatment for corporate taxpayers.

  3. Clarified Tax Treatment for Share Class Redemptions
    Following a string of case law in 2022 and 2023, the Luxembourg legislator has clarified the conditions that need to be fulfilled in order for a redemption and cancellation of a class of shares to qualify as a partial liquidation, an event which is not subject to withholding tax on dividend distributions. This law provides much needed clarity for taxpayers.

  4. Optional Waiver of Participation Exemption
    As from 2025, Luxembourg allows corporate taxpayers to waive the participation exemption on dividends and capital gains for specific holdings, offering additional flexibility in managing tax losses. This aligns Luxembourg with other EU tax regimes and might be of interest for Luxembourg taxpayers in scope of Pillar Two rules.

  5. Mandatory E-Filing for Withholding Tax Returns
    Starting in 2025, Luxembourg mandates e-filing for withholding tax returns for directors’ fees and wages, aiming to streamline the tax filing process and to improve compliance. Companies and individuals should prepare for these new obligations.

  6. Interest Deduction Limitation Rules and Single-Entity Group Concept
    Rules especially relevant for the Luxembourg securitisation sector allow entities that form a so-called ‘single entity group’ to fully deduct their exceeding borrowing costs for corporate income tax purposes. To benefit from these rules, entities cannot form part of a consolidated group for accounting purposes, they should have at least one associated enterprise, and their asset to equity ratio should be equal to or higher than that of the group formed by itself.

  7. Subscription Tax Exemption Expanded to Active ETFs
    Luxembourg extends its subscription tax exemption to active exchange-traded funds (ETFs) qualifying as UCITS, effective January 2025, enhancing Luxembourg’s position as a competitive hub for investment funds.

  8. Increased Minimum Subscription Tax for SPFs
    As of the tax year 2025, the minimum annual subscription tax for sociétés de patrimoine familial (SPFs) increases from EUR 100 to EUR 1,000. The maximum cap remains EUR 125,000. Moreover, the legislator has introduced new penalties for non-compliance with the SPF law, that aim at curbing the use of SPFs in abusive situations.

  9. Employee-Friendly Measures
    Luxembourg introduces several measures to benefit employees from 2025 onwards:
    - Profit-sharing Bonuses (‘prime participative’): The maximum amount an employee can receive under the attractive tax regime of the profit-sharing bonus increases from 5% to 7.5% of the company’s annual profit, and the maximum annual bonus increases to 30% of the employee’s gross salary (from 25%).
    - Inpatriate Regime: Workers moving to Luxembourg will enjoy a conditional 50% exemption from personal income tax on their gross salary, up to an amount of EUR 400,000.
    - Young Employee Bonus: Employees under 30 in their first permanent job in Luxembourg can benefit from a 75% exemption on their bonus for up to five years, subject to specific conditions.
    - Cross-border Employee Overtime: A new tax credit for private-sector employees working extra hours in Luxembourg has been introduced.

  10. Adjustments to Personal Income Tax
    Finally, Luxembourg adjusts the progressive personal income tax brackets to reflect the cost of living, including:
    - Tax Class 1A formula brought closer to Tax Class 2.
    - Exemption for non-qualified minimum wage earners.
    - Single-Parent Tax Credit rises to EUR 3,504 for income under EUR 60,000.
    - CO2 Tax Credit increases to EUR 192 per annum, mostly benefiting low and middle-income earners.

2024 and 2025 have been very busy for the tax legislator. The reforms are designed to foster a more competitive tax environment. Luxembourg remains committed to enhancing efficiency and supporting economic growth. Staying informed on these key changes is essential to navigating the evolving tax landscape in 2025.

This article was first published by the Luxembourg Times.