Tax News Luxembourg

By GT Fiduciaires

1. Employee stock option plans: a new reporting requirement for employers

On 28 December 2015, the director of the Luxembourg tax authorities issued Circular L.I.R. n° 104/2bis relating to employee stock option plans. The new circular merely introduces a new reporting requirement. As from 1 January 2016, employers who intend to set up stock option /warrant plans will have to notify the competent tax office in charge of withholdings on employment income at least two months before the implementation date of the plan. The notification  shall include a copy of the plan rules as well as a list of the beneficiaries of the above-mentioned plan. Furthermore, for all plans set up prior to 1 January 2016, but for which the grant of options /warrants did not yet take place, employers are obliged to also inform the competent tax office in charge of withholdings on employment income at their earliest convenience.

2. Transposition into national law of the amendments to the Parent-Subsidiaries Directive

Article 166 LIR and §9 of the Municipal Business Tax Law have been amended to insert the general anti abuse rule and the anti-hybrid mismatches provision. It should be noted that the application of the general anti-abuse rule should be proportionate and should serve the specific purpose of tackling an arrangement or a series of arrangements that are not put into place for valid commercial reasons which reflect economic reality.

Therefore, dividend payments received by an eligible Luxembourg parent entity from an eligible subsidiary located in another Member State will not be exempt under the participation exemption regime in cases where such revenues are deductible in that Member State.

The benefits of the participation exemption regime will also not apply where the transaction qualifies as an abuse of law following the common anti-abuse rule. Other provisions of article 166 LIR should continue to apply.

Capital gains under the participation exemption regime, as well as net wealth tax aspects, are not impacted by these modifications.

3. Abolition of the minimum corporate income tax

The minimum corporate tax regime, introduced in 2011 and further amended in 2013 and again in 2015, will be abolished as from 2016. Indeed, this regime was always controversial for its potential incompatibility with EU legislation, will now be abolished and replaced by a minimum net wealth tax.

4. Introduction of a new Net Wealth Tax system

The abolition of the minimum corporate income tax will be compensated by the introduction of a new Net Wealth Tax (“NWT”) system consisting of a digressive-two rates system. NWT continues to be levied at a rate of 0.5% on an amount of the so-called unitary value (representing the net asset value of the companies being the taxable basis of NWT) up to and including 500 € million.  The law proposes to amend the provisions of the NWT law by replacing the current minimum taxable NWT (currently 62.5 EUR for joint stock corporations or 25 EUR for limited liability companies) by a minimum annual NWT payable for resident companies as follows:

3.210 EUR if the sum of fixed financial assets, transferable securities, cash and receivables owed to affiliated companies exceeds 90% of their balance-sheet total (holding companies) plus 350,000 EUR; or

For all other companies not being considered “holding companies” as per the above test, the amount of minimum NWT will depend on the balance sheet total at the closing of the preceding financial year. For this purpose seven ranges have been foreseen from a total balance sheet of 350,000 EUR and a minimum NWT liability of 535 EUR through to a balance sheet of more than 30 million EUR with a minimum NWT liability of 32,100 EUR.

The minimum NWT regime also applies to companies applying the tax group regime, whereby the NWT liability of the group is caped at EUR 32,100.

Furthermore, the new NWT regime also will apply to securitization companies, venture capital companies, corporate pension funds, all incorporated under the form of a capital company, and pension savings associations.

Finally, companies still benefit from the possibility to reduce the NWT liability through the creation of a reserve.

5. Termination of the current IP regime

In order to comply with the “modified nexus approach” as agreed at the level of the Organisation for Economic Co-operation and Development (OECD) in the frame of the working group attached to Action 5 of the Base Erosion and Profit Shifting (BEPS plan) on Countering Harmful Tax Practices More Effectively, the Government has announced the termination of the current IP regime in the Budget law. As a result, should the budget be approved in its current shape, article 50bis of the Income Tax Law will be abolished as from July 1, 2016 and paragraph 60bis of the Valuation Law, which provides for an exemption from NWT for qualifying IP would be abolished as from January 1, 2017. The draft law provides however for a five-year transitional period according to which the current IP regime will continue to apply, until June 30, 2021, to any qualifying intellectual property (IP) that has been created or acquired before July 1, 2016, including improvements made to such IP completed before July 1, 2016.

Finally, the law foresees that the Luxembourg tax authorities will spontaneously exchange information on tax payers benefiting from the current IP Box regime for IPs created or acquired after February 6, 2015.


Published: February 2016 l Photo: Uwe Rieder

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