Taxes in Luxembourg

Last December was a month that saw significant changes, courtesy of the Parliament in Luxembourg. Changes which will affect Luxembourg’s economy in vast ways for the days to come.
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It is during this month that the 2015 budget passed alongside “the Zukunftspak” (first part of the future package). The package comes with new tax measures for individuals and corporations.Taxes in Luxembourg 2015

“Contribution pour L’avenir des enfants”: translated into English, this means “for the future of the children”. It seeks to enforce the introduction of an extra 0.5% contribution from the taxpayers. The additional contribution applies to several incomes.

The first income is the professional and replacement income. It got decreased by an amount corresponding to ¼ of Luxembourg’s minimum social wage. The second is the patrimony income, also known as income from movable/immovable assets. It has a 1/4 % dependency contribution. Therefore, the contribution for the children’s future is assessed on a basis not capped and is free of tax.

The corporate tax rate never got increased. There were further no indications regarding related changes. A new transfer regime, however, got introduced. The scheme adapts quite well with the international principles. Notably, the arm’s length principle which matches the OECD Tax Model Convention. That said, the provisions give room for necessary adjustments of profits where transfer charges are not in line with the “arm’s length” principle.

Further amendments appear in the current disclosure and documentation legislations. Taxpayers are now supposed to support their tax returns with respect to any transactions made. In absence proper documentation, liability of burden of proof falls on the taxpayer’s shoulders.
As for the direct tax system, a reviewed and integrated system for advanced tax confirmations comes into play. All this in a bid to give taxpayers legal certainty on all transactions made. At the same time, it offers unified democratic treatment between taxpayers. In the long run, it will boost Luxembourg tax system’s integrity. The tax administration is set to receive a maximum of £10,000 for any administrative or operations-based transactions further improving integrity. With time, the system is to be upgraded to a more detailed Grand-ducal Decree.

Minimum corporate income tax rules get expounded further. The small/dormant bodies are to pay amounts on a scaled down level. Any corporation based in Luxembourg and with 90% of their total gross assets being either; transferable securities, cash at bank and fixed financial assets, must pay a minimum of £3210 corporate income tax.
The scope of this minimum tax gets further into detail in the budget laws of 2015. It is to be applied only where two cumulative conditions get fulfilled. First, the sum of fixed financial assets and related assets must exceed both 90% of total gross assets and £350,000. Secondly, all the entities with total gross assets below £350,000 are liable to pay only £535 minimum corporate income tax. There is also a notable change in rules governing residents and non-resident taxation