Decrease of the CIT rate
As from fiscal year 2025, the corporate income tax rate is decreased by one percentage point. The main rate thus becomes 16%, which will decrease the consolidated income tax rate from 24.94% to 23.87% (including the municipal business tax and employment surcharge) for companies based in Luxembourg-city.
Minimum net wealth tax (NWT)
Following the Constitutional Court decision 185/23 of 10 November 2023 (for more information, see our prior newsflash), the rules on minimum net wealth tax (NWT) have been simplified and now provide a scale of three lumpsum amounts solely based on the total balance sheet of the taxpayer.
As from 1 January 2025, the minimum NWT amounts to
- EUR 535 for taxpayers whose total balance sheet is equal or lower than EUR 350,000 (as is currently the case);
- EUR 1,605 for taxpayers whose total balance sheet is higher than EUR 350,000 but does not exceed EUR 2,000,000 (instead of the current EUR 4,815 applicable to most holding and finance companies);
- EUR 4,815 for taxpayers whose total balance sheet is higher than EUR 2,000,000 (which becomes the new maximum amount, compared to a previous maximum of EUR 32,100).
Codification of case law on the tax treatment of share class redemptions
The new provision clarifies that the redemption of an entire class of shares qualifies as “partial liquidation” provided that the following conditions are cumulatively met:
- The redeemed class of shares is cancelled entirely and within six months of its repurchase;
- The class of shares were set up either at incorporation or upon a share capital increase;
- Each class of shares bears different economic rights distinct from the other classes of shares, as defined in the articles of association. Examples of different economic rights are (i) (different) preferential dividends, (ii) exclusive right to profits for a different determined or determinable period, or (iii) financial rights linked to the performance of one or more of the entity's direct or indirect assets or activities; and
- The redemption price for the class of shares should be determinable based on criteria laid down in the articles of association (or another document referred to in the articles of association) and reflecting the fair market value of the redeemed shares.
When the class of shares being repurchased is (also) held by an individual who holds an important participation (in a nutshell, a participation of at least 10% at any time during the prior five years), the identity of the individual must be reported in the annual tax return of the distributing company.
Possibility to waive total or partial participation exemption on certain shareholdings
Under the Luxembourg participation exemption regime, income (such as dividend and capital gains) derived from a participation are exempt if certain conditions are met. The new provision now allows taxpayers to opt to waive the benefit of the participation exemption, but only for participations relying on the condition that the acquisition cost in the capital of the participation is higher than EUR 1.2 million for dividends (EUR 6 million for capital gains). The waiver is not available for participations in which the taxpayer holds 10% or more in the capital of the participation.
The same waiver is possible for the 50% dividend exemption. The waiver is applicable on the entire participation and cannot be on some shares only.
This amendment facilitates alignment with participation exemption regimes in other jurisdictions and also using accumulated tax losses which, since 2017, can be carried forward for 17 years only.
Any waiver would have to be made individually for each tax year and for each participation. These amendments would apply as from tax year 2025.
Mandatory e-filing of withholding tax returns of directors’ fees (tantièmes) and wages
As from 1 January 2025, the law extends mandatory electronic filing to withholding tax returns on directors’s fee (tantièmes), withholding tax returns on remunerations and pensions to be filed by employers, interim work agencies, and some public organisations, and some other returns.
Technical amendment to the interest deduction limitation rules
A taxpayer that is not part of a consolidated group for financial accounting purposes, but is not formally considered as a standalone entity, referred as a “single-entity group” (group à entité unique), will be allowed to deduct, upon request, the full amount of its exceeding borrowing costs, provided that it can demonstrate that the ratio between its equity and its total assets is equal to or greater than the equivalent ratio of the single-entity group. The ratio of the single-entity group is computed by excluding debts to associated enterprises (as defined). This rule is separate from the existing group equity ratio escape (clause de sauvegarde).
Taxpayers (i) who may be subject to voluntary consolidation for tax purposes; or (ii) who are only excluded from the scope of consolidation because of the insignificant interest or small size exemptions cannot benefit from this new equity ratio escape.
The modification also contains an anti-abuse clause to prevent arrangements which, as a principal objective or as one of the principal objectives, have been set up to increase the ratio between the taxpayer's equity capital and its total assets, thereby facilitating the taxpayer's eligibility for the safeguard clause, to benefit from this measure.
Subscription tax exemption extended to active ETFs
The exemption from subscription tax for passively managed ETFs is extended to actively managed ETFs, starting from 1 January 2025.
SPF tax regime
The law modernizes the tax regime applicable to family wealth management companies set up as “société de gestion du patrimoine familial” (SPF) and increases the minimum subscription tax amount from EUR 100 to EUR 1,000.
The law also allows the indirect tax authorities to issue administrative fines up to EUR 250,000 in case of non-compliance with any of the legal obligations imposed to the SPF but provides a six-month period to remedy observed breaches. If breaches are nor remedied, SPF regime benefits could be permanently withdrawn.
Measures for individuals
Next to the above measures, Luxembourg has also adopted some measures for individuals:
- Amendment to the profit-sharing bonus (prime participative);
- A simplified impatriate regime;
- A new young employee bonus;
- New overtime tax credit; and
- Adjustments to the income tax bracket.
Should you have any question on the impact of these measures for your business, please reach out to an author of this newsletter or to your trusted Loyens & Loeff contact.
