Tax Reform in Luxembourg by Joseph Mayor & Christophe Davezac
By a law of 21 December 2001 and a Grand-Ducal regulation of the same day (both published in the Official Gazette of 27 December 2001), the Grand-Duchy of Luxembourg has adopted its most important Tax Reform of the last ten years. Indeed, more than 80 articles of laws concerning among other income tax, net wealth tax, municipal business tax, contribution duty and investments funds have been amended.
This reform has several aims:
a.. simplification and clarification of some provisions (e.g. rules concerning the exchange of shares, withholding tax on royalties),
b.. cancellation of some provisions which could be considered as “harmful tax practice” by other European Union member states (e.g. tax exemption of 50% of the dividends paid by European Union companies to Luxembourg recipient),
c.. increase the Luxembourg competitiveness and attractiveness (e.g. decrease of the corporate and individual tax rates, decrease of the subscription tax of the investment funds, mitigation of the conditions to be fulfilled for capital gain tax exemption etc..),
The main changes adopted by the new law and Grand-Ducal regulation are the following :
Corporate tax : The corporate tax rate is reduced from 37.45% to 30.38% for all revenues not benefiting from tax exemption (dividends and capital gains for example may be tax exempt under certain conditions).
Individual tax : the higher taxation rate for individuals has been decreased from 47,15% to 38,95%.
Withholding tax on dividends: the normal rate has been decreased from 25% to 20%. A lower rate or a 0% withholding tax can also be achieved in application of a double taxation treaty or the mother company-subsidiary privilege (as it results from the European directive n°90/435 of 23 July 1990).
Subscription tax for the investments funds: In order to enhance this economical sector (the amount of the Luxembourg investment funds’ balance sheet is currently EUR 94,595 billion), this tax has further been reduced from 0.06% to 0.05%.