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2011 Tax Measures Announced
On 5 May 2010, in his traditional speech to the Nation, Prime Minister Mr. Jean-Claude Juncker announced some tax measures to be introduced as from 2011. On 9 July, the Government then approved a draft law that introduces some of these measures aiming at restoring budgetary balance. The draft law still needs to be discussed and commented by the various chambers and the State Council prior to being passed by the parliament. It might therefore evolve in this process. The key measures are below.
Tax measures for companies
Exchange Traded Funds become exempt from subscription tax
Exchange Traded Funds ("ETFs") will be exempt from the 0.05% subscription tax currently levied on their Net Asset Value.
Minimum taxation for SOPARFIs
A minimum taxation of EUR 1.500 will be introduced for unregulated collective undertakings for which the sum of fixed financial assets, transferable securities and cash at bank represents more than 90% of total assets. The entities concerned are likely to be SOPARFIs with a mainly holding activity.
Solidarity surcharge increased by 1%
The solidarity surcharge due by companies will be increased by 1%, from 4% to 5%.
This means that the global tax rate for companies (i.e. Corporate Income Tax + Municipal Business Tax) will be brought from 28.59% (current rate) to 28.80%, meaning a slight increase of 0.21%:
CIT = 21% + (21*5% solidarity tax) = 22.05%
MBT = 6.75%
As expected given the current economic context, no decrease of the Corporate Income Tax rate will take place this year, despite the announcements made in the past years.
Investment tax credit increased
Improvements to the Investment Tax Credit system have been announced. The Ministry of Economy proposed to amend article 152bis in order to introduce increased tax credit rates for investments aiming at modernising the equipment to increase productivity and improve efficiency.
Energy saving investments
The depreciation rules applicable to energy saving investments will be amended in order to spur this type of investment. The maximum special depreciation is increased from 60 to 80%.
Tax deductibility of exit premiums limited
Exit payments (so-called "golden parachutes") will now only be tax deductible up to an amount of EUR 300.000.
Expansion of DTT network
The Prime Minister announced that the Government would keep on working on the expansion of the Luxembourg double Tax Treaty network.
Tax measures for individuals
Top marginal income tax rate increased to 39%
A new top marginal tax rate will be introduced, which will apply as from a taxable income of EUR 41.793 (EUR 83.586 for a household of 2 persons).
Solidarity surcharge increased to 4 or 6%
The solidarity surcharge due by individuals of currently 2,5% will be increased to 4% and it will be brought to 6% as from a taxable income of more than EUR 150.000 (EUR 300.000 for a household of 2 persons).
Crisis contribution of 0.8% introduced
A "crisis contribution" of 0.8% will be levied in 2011 and 2012 on all income types: salary, rental income, dividends, etc.
Effective marginal rate
We have illustrated in the below table the likely impact of these various increases, assuming an annual taxable income of more than EUR 300,000:
Kilometer allowance and lump sum for traveling expenses reduced by half
The kilometer allowance available to dependent and independent workers will be reduced by half. The same will apply to the lump sum for traveling expenses.
Registration tax credit for acquisitions of personal dwellings limited
A EUR 20,000 registration duty tax credit is currently available to all individuals, disregarding their level of revenues, in case of acquisition of a personal dwelling. In future, the tax credit will only be granted to individuals whose income does not exceed a certain level.
The Prime Minister's speech was made in a context focussing on competitivity while restoring budgetary balance. We wait to see how these changes will impact business and individuals.
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