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Luxembourg: introduction of new tax measures for 2011


The voting of these measures follows the previous announcements made by Prime Minister Jean-Claude Juncker in his State of the Nation's speech of 5 May 2010(1). The new law contains provisions relating to individuals and corporations, applicable from 1 January 2011.

In addition, further tax measures for 2011 will be introduced shortly, as soon as bill n°6170 (the main purpose of which is the implementation of the "UCITS IV Directive" into Luxembourg law and which is currently under discussion in front of the Luxembourg Parliament) is approved.

The various tax measures are summarised below.

Measures for Corporations

  • Severance payouts and departure indemnities are tax deductible at the level of the employer only up to EUR 300,000. This provision is not surprising as it is in line with the more global context of international protest against "golden handshakes", which are often viewed as being disproportionate.
  • The solidarity surtax (or contribution to the Employment Fund) is increased from 4% to 5%. The financial efforts required from corporations in this respect are less burdensome than for individuals (see below). As a result, corporations will be subject to a global corporation tax rate of 28.80% (for Luxembourg City) as compared with the current rate of 28.59%.
  • A minimum lump-sum taxation of EUR 1,500 (EUR 1,575 including the solidarity surtax) is introduced for corporations whose net assets comprise more than 90% of financial assets, transferable securities and cash at bank (provided that their activities are not subject to a business licence or to the authorisation of a supervisory authority). The amount of this minimum taxation has been fixed at a relatively low level in order to limit the adverse tax consequences for companies affected by this measure. Luxembourg should therefore remain competitive as far as corporations are concerned.

The law contains two measures aimed at reinforcing Luxembourg's competitiveness and developing investments:

  • The tax credit for investments (ie "global" and "complementary" investments) listed under article 152 bis LIR is improved as it is increased by 1%.
  • The provisions of article 32bis LIR (providing for a special depreciation for environmental investments) are improved. Companies making energy-saving investments or investments protecting the environment can use a special depreciation rate of 80% (instead of the current 60%).

Measures for Individuals

  • A new maximum income tax rate of 39% is introduced, above the current marginal rate of 38%. This rate applies to income exceeding EUR 41,793 for Class 1 and EUR 83,586 for Class 2.
  • The solidarity surtax (or contribution to the Employment Fund) is increased from 2.5% (current rate) to 4%. For higher income earners (ie taxable income exceeding EUR 150,000 for Class 1 and EUR 300,000 for Class 2), this rate is increased to 6%.
  • Alimonies paid to a divorced spouse are now deductible up to EUR 24,000 (compared with the current EUR 23,400).
  • A crisis contribution of 0.8% is introduced. This contribution is a new tax applying to all professional, replacement and patrimonial income. This tax is, in principle, short-term as it applies to years 2011 and 2012 (subject to confirmation that it will still be required in 2012; further discussions should take place at the end of 2011 to assess its applicability for 2012).

Proposed measures for Undertakings for Collective Investment (UCIs)

Bill n°6170 includes a certain number of tax measures which will be applicable from 1 January 2011 if, as expected, the bill is voted before the year end. The proposed measures are as follows:

  • Exemption from subscription tax for Exchange Traded Funds (ETF) as well as for funds set up as multi-employer pension pooling vehicles.
  • Tax exemption of all capital gains realised by non-resident investors on the sale of shares held in a UCI in the form of a corporate entity (SICAV/SICAF).
  • Tax exemption of foreign UCIs which are managed by a Luxembourg management company or which have their central administration in Luxembourg. This provision aims at clarifying the tax treatment applicable to these funds. They could otherwise run the risk of being considered as being tax resident in Luxembourg and taxed as such.



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