New tax measures for companies adopted by Chamber of Deputies

The Luxembourg Chamber of Deputies just adopted various tax laws that adjust current tax measures, provide clarifications, and increase legal certainty for corporate taxpayers. The final legislative steps are expected by the end of the year.

This tax alert focuses on certain measures relevant to corporate taxpayers, in particular regarding a reduction in the corporate income tax rate, the optionality of the participation exemption regime, amendments to the minimum net wealth tax regime, clarification of the scope of partial liquidations, and mandatory electronic filing.

Reduction in corporate income tax rate
 

To bring the corporate income tax rate closer to the average in other OECD countries, the rate in Luxembourg will be reduced from 17% to 16% as from 2025 tax year for companies with taxable income over EUR 200,000, and from 15% to 14% for companies with taxable income up to EUR 175,000. For an undertaking located in Luxembourg City whose taxable income exceeds EUR 200,000, the effective corporate income tax rate will be 23.87% as from fiscal year 2025 (instead of 24.94%), including the unemployment fund contribution and the municipal business tax.

Optionality of participation exemption regime and of 50% exemption
 

As from fiscal year 2025, corporate taxpayers may waive the benefit of the participation exemption regime for both dividends and capital gains, as well as the benefit of the 50% exemption provided for in article 115-15a of the Luxembourg Income Tax Law (LITL). The benefit of this waiver will apply both for corporate income tax and municipal business tax purposes but not for net wealth tax purposes.

The option to waive the exemption will only be available when the conditions for the participation exemption regime are met solely because the shareholding satisfies the requisite purchase price threshold (EUR 1.2 million for dividends and EUR 6 million for capital gains).

As stated in the commentaries to the law, such a waiver is in line with regimes existing in a number of other EU member states and will grant greater flexibility to certain collective entities, which may have a greater interest in using their loss carryforwards than benefiting from the exemption. When the conditions for the exemption are met based on a participation rate of at least 10%, it will not be possible to exercise this waiver due to the constraints arising from the EU parent-subsidiary directive.

The waiver may be exercised individually for each fiscal year and for each participation. In the absence of such a waiver, the exemption will continue to apply as it stands.

The rules also specify how corporate taxpayers should apply the recapture rules when waiving the exemption on capital gains.

Amendments to the minimum net wealth tax regime
 

The minimum net wealth tax regime is amended to comply with a November 2023 decision of the Constitutional Court (case n”185, in French only) and to simplify its application by removing the balance sheet composition criterion.

As from fiscal year 2025, the minimum net wealth tax will be based exclusively on the taxpayer’s accounting balance sheet total. The taxpayer, whatever the composition of its balance sheet, will be liable to a minimum net wealth tax as follows:

• EUR 535 where the balance sheet total is less than or equal to EUR 350,000;
• EUR 1,605 where the balance sheet total is greater than EUR 350,000 but less than or equal to EUR 2 million; and
• EUR 4,815 where the balance sheet total is greater than EUR 2 million.

This means that the maximum amount of minimum net wealth tax due by a taxpayer will be EUR 4,815 (instead of EUR 32,100). However, the current rules applicable to tax consolidated groups will remain the same, meaning that the minimum net wealth tax due by those groups will still be capped at EUR 32,100.

Clarification of the scope of partial liquidations
 

The amendment to article 101 (2) LITL aims to clarify the scope of liquidations of classes of shares or units, inspired in particular by recent administrative case law.

Mandatory electronic filing
 

As from 1 January 2025, the obligation to file tax returns electronically will be extended to withholding tax returns on directors’ fees (“tantièmes”) and on remuneration.

Other measures
 

• The interest limitation rules are adjusted for fiscal years beginning on 1 January 2024 or later. As stated in the commentaries to the law, a technical amendment is made to clarify the application of article 168bis LITL in the specific case of entities that are not part of a consolidated group for financial accounting purposes and that are not considered standalone entities for purposes of the rule limiting the deductibility of additional borrowing costs.
• The tax regime of family asset management companies (SPFs) is revised to increase the minimum annual subscription fee amount for those entities from EUR 100 to EUR 1,000 as from 2025, and to clarify the application of control procedures (including the way to identify them) and the withdrawal of their tax status.
• Exchange traded funds (ETFs) that are actively managed will be exempt from subscription tax as from 2025.