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Luxembourg Tax Authorities clarify the income tax regime - 08/08/2013


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As from 2011, Luxembourg introduced a minimum income tax regime. This flat tax, first presented as necessary to cover administrative costs related to the management of tax files, has recently been revamped with new rules applying as from 2013.

The Luxembourg Tax Authorities issued a circular1 on 1st August aimed at clarifying the scope and the various criteria applying to the flat tax for the 2011, 2012 and following tax years. Below you will find a picture of the current situation as from 2013.

All collective entities with  their statutory seat or central administration in Luxembourg are liable to the minimum income tax, regardless of whether they are regulated (before 2013, only unregulated collective entities were subject to the minimum tax).
Luxembourg permanent establishments of foreign companies are outside the scope of the minimum tax on the basis that, in principle, foreign companies have their statutory seat or central administration outside Luxembourg.

The amount of minimum tax due by a Luxembourg collective entity depends on the composition of its balance sheet. For this purpose, Luxembourg collective entities are divided into two categories:

  • Tax resident collective entities that have qualifying holding and financing assets exceeding 90% of their balance sheet.  These are liable to a minimum flat income tax of EUR 3,210, including the unemployment fund surcharge; and
  • Tax resident entities, other than those that hold mainly financial items (broadly, operating companies).  These are subject to a progressive minimum income tax depending on the total assets on their balance sheet. The tax ranges from EUR 535 (for a total balance sheet up to EUR 350,000) to EUR 21,400 (for a total balance sheet exceeding EUR 20 million), including the unemployment fund surcharge.

Important things to note are:

Liability to the tax

The tax due is not reduced if the taxpayer is not subject to corporate tax for the full year. Liquidated or new entities are always the debtors of the full tax liability. Where an entity is put into liquidation, taxation will arise following the date of completion of the liquidation process providing the liquidation process itself does not exceed a period of 3 years. Otherwise, taxation occurs every year on the basis of the balance sheet of the corresponding year.

Income allocation/ Tax treaty

The circular confirms that the accounting value of assets producing income that is only taxable in another state under a tax treaty will be excluded from the calculation of the total of the balance sheet. Consequently, the accounting value of real estate together with the accounting value of a Luxembourg entity’s permanent establishment situated in a treaty country will be eliminated from the calculation of the taxable basis for the application of the minimum income tax.

An Advance

The minimum income tax is viewed as an advance payment of corporate tax and will not be reimbursed by the Luxembourg tax authorities. In practice, the tax will be due when Luxembourg collective entities are in a tax loss position or paying less than the minimum income tax. In such cases, the amount paid can be offset against future corporate tax liabilities with no time limit.

Tax consolidation

For tax consolidated Luxembourg collective entities, all entities in the group are subject to the minimum income tax (payable by the parent entity). However, the aggregate amount due by a tax consolidated group will be limited to EUR 21,400 (including the unemployment fund contribution). The right to benefit from the non-reimbursable advance for the following tax years is exclusively granted to the head entity of the consolidation.

Credits and losses

Each taxpayer subject to the minimum income tax will have to pay it even if they can benefit from tax credits (such as those available for investments, recruitment of unemployed people, etc.). The circular provides the rules to follow when a taxpayer may use several reliefs and illustrates these in various examples.

The minimum income tax does not affect losses. Losses are still deductible against existing income and can still be carried forward indefinitely.

  1Circulaire du directeur des contributions L.I.R. - n° 174/1 du 1er août 2013

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