Luxembourg Budget 2013 update: Tax measures details - 09/11/2012
On Tuesday, the Luxembourg Finance Minister presented a revised 2013 budget with the intention of generating additional revenue. Detailed tax provisions in connection with the 2013 budget were submitted to the Luxembourg parliament on 8 November 2012 (draft law n°6497).
Please find below the main direct tax measures affecting companies and the VAT changes affecting both small enterprises and individuals. For information on direct tax measures affecting individuals, please refer to our Tax Alert of 7 November 2012.
Measures affecting companies
- Minimum flat tax applicable to all collective entities “organismes à caractère collectif” subject to Corporate Income Tax
As from 1 January 2011, a minimum flat tax was introduced which was payable by collective entities for which the total of financial assets, transferable securities and cash exceed 90% of the total balance sheet. An exemption applies for entities whose activities were subject to approval of a minister or supervisory authority.
It is proposed that the minimum flat tax due from the concerned collective entities (such as “soparfi”) would be increased from €1,575 to €3,210 (taking into account the increase of the Employment fund surcharge from 5% to 7%).
The draft law also clarifies that interests held in tax transparent partnership would be deemed to be registered in the balance sheet to accounts 231 and 233 and would therefore be taken into account for the purposes of the minimum 90% threshold test.
A progressive flat tax would be introduced for any collective entities subject to Corporate Income Tax other than those detailed above (including Luxembourg permanent establishment, Luxembourg real estate of foreign undertakings). The amount due would depend on the total assets on the balance sheet, rather than being based upon turnover criteria as mentioned in the press release issued by the government on Tuesday.
The flat tax, including the surcharge of 7%, would range from €535 (for a total balance sheet up to €350,000) to €21,400 (for total balance sheet exceeding €20,000,000).
The minimum flat tax only applies to collective entities paying no taxes (tax loss position) or less than the above amounts, depending on their respective situations.
The draft law mentions where the Luxembourg fiscal consolidation is applicable, all companies of the tax group would be respectively subject to the minimum flat tax (currently this only applies once at the level of the head of the consolidated group). The mother company of the tax group will pay the aggregate amount of minimum flat tax (as for the Corporate Income Tax and Municipal Business Tax payments).
Moreover, the draft law mentions tax credits (i.e., for investments, recruiting unemployment persons…) would not reduce the minimum flat tax.
- Modification of the Net Wealth Tax (“NWT”) reserve
Luxembourg companies may ask, under certain conditions, for a reduction of the NWT charge (NWT reserve) to a maximum amount of the Corporate Income Tax (before any tax credits).
The government proposed the calculation would be done after any tax credits. Moreover, the minimum flat tax would not be taken into account for determining the maximum amount of the reduction.
VAT changes affecting small enterprises and individuals
- Increase of the threshold of the VAT exemption for small enterprises “régime de la franchise”
A VAT exemption is currently available for liable persons realising a turnover up to €10,000 (exemption regime for small enterprises – “régime de la franchise””). The new threshold would be €25,000.
- Reduction of the benefit resulting from the application of the 3% reduced VAT rate on private residence
The advantage resulting from the application of the 3% reduced VAT rate on construction and renovation works of dwelling would be limited to €50,000 (instead of €60,000 currently).
The proposed rules will be discussed by parliament in the week of 10 December. They would be applicable as from 1 January 2013.
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