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The impact of the minimum CIT on NWT reduction rules

Luxembourg

Luxembourg tax law allows Luxembourg companies and Luxembourg permanent establishments (PE) to reduce the amount of net wealth tax (NWT) due if they meet certain requirements including that NWT can neither exceed the amount of corporate income tax (CIT) due, nor can it exceed the amount of minimum CIT that would be due based on the minimum CIT rules. Taxand Luxembourg discusses the Circular issued by the Government which was aimed at clarifying what this means in practice.

What are the conditions to get a NWT reduction?
The Circular expands on the formal conditions regarding the filing of the request to benefit from the NWT reduction. It further indicates what the tax authorities expect in terms of content in the tax return in order for them to check whether the conditions to benefit from the NWT reduction are met during the 5 year period.

What are the limitations to a NWT reduction?
The Circular explains the 2 cumulative limitations to the NWT reduction, the second limitation having been introduced following the implementation of the minimum CIT:

  • 1st limitation: the NWT reduction cannot be higher than the CIT due
  • 2nd limitation: the NWT reduction cannot be higher than the minimum CIT that the company would be subject to, based on the minimum CIT rules. In this respect the Circular confirms that this 2nd limit applies to all companies, whether they are or not effectively subject to the minimum CIT

What happens if the reserve is not kept during 5 years?
The Circular illustrates with an example what happens in case the reserve is not kept during the required time period (reserve distributed before the 5 year period elapses).

What happens in case of tax consolidation?
While Luxembourg companies may consolidate for CIT purposes, there is no such tax consolidation for NWT purposes. So, in case of tax consolidation, the reduction of NWT is not granted up to the amount of minimum CIT which would be due based on the minimum CIT rules by each of the consolidated companies if there would be no tax consolidation. The Circular provides an example to illustrate the application of this rule.

Discover more: The impact of the minimum CIT on NWT reduction rules


Your Taxand contacts for further queries are:
Keith O'Donnell
T. +352 26 940 257
E. keith.odonnell@atoz.lu

Samantha Merle
E. samantha.merle@atoz.lu

 

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Taxand's Take

The Circular is positive in the sense that it clarifies, by means of examples, the practical application of the amended NWT deduction rules. It is therefore a useful tool for taxpayers. In addition it brings some clarification on aspects which were debatable so far, such as the liquidation of the Luxembourg company within the 5 year time period.

Taxand's Take Author

Keith O'Donnell
Taxand Board member & Taxand global real estate tax service line leader
Luxembourg