New Tax Measures Designed to Reinforce Luxembourg’s Attractiveness

Background

On 17 July 2024, the Luxembourg government introduced, under new Bill n° 8414, a comprehensive legislative package meant to modernise and enhance Luxembourg’s tax system. This bill proposes significant amendments to existing laws, focusing on both individual and corporate tax relief while also incorporating measures to stimulate economic growth and competitiveness, especially for workers, companies, and investment funds.

Key Measures

1. Individual Tax Measures

a) Tax bracket adjustments

Adjustments to the tax brackets and rates are designed to reflect inflation and reduce individuals’ tax burden, with a particular focus on benefiting lower-income households and single-parent families.

b) Enhancement of the prime participative tax scheme

The bill enhances the prime participative tax scheme by increasing the exempted portion of participative bonuses from 25% to 30% of the employee’s annual gross salary and raising the total amount a company can allocate to participative bonuses from 5.0% to 7.5% of the company’s profit for the previous year. This enhancement aims to make the participative bonus scheme more competitive.

c) New bonus for young professionals

The bill introduces a new bonus that is partly tax-exempt for young professionals under 30. This measure aims to support early career development and retention of young talent in Luxembourg, offering a significant incentive for young professionals to start and build their careers in the country.

d) Modernisation of the impatriate tax regime

The bill proposes a simplified and more attractive tax regime for impatriates, offering a 50% tax exemption on annual gross compensation up to  €400,000. This initiative aims to attract highly skilled international talent by aligning Luxembourg’s offering with other competitive jurisdictions.

e) Tax credit for cross-border workers

The bill introduces a new tax credit for overtime hours worked by cross-border employees. This initiative addresses the issue of double taxation and enhances Luxembourg's attractiveness to foreign employees.

2. Corporate Tax Measures

a) Reduction in CIT Rate

A reduction in the corporate income tax (CIT) rate by 1%, starting from the fiscal year 2025, is proposed:

• From 17% to 16% for companies with a taxable income greater than €200,000, which would result in an aggregate rate of 23.87% for companies that are tax resident in Luxembourg City
• From 15% to 14% for companies with a taxable income of €175,000 or less, which would result in an aggregate rate of 21.73% for companies that are tax resident in Luxembourg City

b) Exemption from subscription tax for actively managed UCITS ETFs

The government has introduced a full exemption from subscription tax for certain actively managed undertaking for collective investment in transferable securities exchange-traded funds (UCITS ETFs). The scope of this new exemption is limited to those UCITS ETFs that are listed. If there are several units or compartments within the listed UCITS fund, the exemption applies only to the unit or compartment qualifying as an ETF. This measure would become applicable on the first day of the trimester that follows the date of entry into effect of the law.

c) Changes to the law on (SPFs)

Under current law, family wealth management companies (sociétés de gestion de patrimoine familial, or SPFs) are subject to a favorable tax regime under which they benefit from a full exemption from corporate income tax and net wealth tax, under certain circumstances. SPFs are, however, liable to an annual subscription tax. The bill increases the minimum annual subscription tax from €100 to €1,000 and clarifies debt calculations and compliance requirements, including the electronic submission of compliance certificates. Also, the bill reinforces the possibility for the authorities to issue increased penalties on SPFs for noncompliance, in addition to SPF status withdrawal.

Conclusion

This new bill represents a comprehensive effort by the Luxembourg government to modernise its tax system, support economic growth, and “enhance the attractiveness of Luxembourg and its financial centre,” as explained by Luxembourg Minister of Finance Gilles Roth. The proposed measures are expected to provide significant tax relief, foster investment, and improve overall economic competitiveness for workers, companies, and investment funds. The bill will go through the legislative process and may be subject to further amendments.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.