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Issues around minimum CIT clarified
From 2011 until 2012, only unregulated companies with a minimum of 90% of financial assets in their total balance sheet were subject to a minimum Corporate Income Tax (CIT) in Luxembourg. Since 2013, all Luxembourg tax resident companies, whether regulated or not, are subject to a minimum CIT. Taxand Luxembourg discusses the 2 different types of minimum CIT and how to decipher which applies to your company.
A minimum CIT of EUR 3.000 (EUR 3.210 including the 7% solidarity surcharge) applies to companies tax resident in Luxembourg which hold more than 90% of financial assets. This minimum CIT is basically the SOPARFI minimum CIT which was in force in 2011 and 2012, but its scope has been extended to regulated entities and its amount increased from EUR 1,500 to EUR 3,000.
A minimum CIT which varies between EUR 500 for a total balance sheet of up to EUR 350,000 and EUR 20,000 (EUR 21,400 if including the 7% solidarity surcharge) for a total balance sheet of more than EUR 20,000,000 applies to all other companies which are tax resident in Luxembourg and do not fall under the first mentioned category.
Which types applies to you?
In order to determine to which minimum CIT a Luxembourg resident company is subject, firstly it has to be decided whether the Luxembourg tax resident company holds more than 90% of financial assets or not. To do so, the same principles are applicable as for the 2011 and 2012 minimum CIT. It means that to determine if the 90% threshold of financial assets is met, the closing commercial balance sheet is used. Interests in partnerships are considered as financial assets and tax transparency does not apply.
However, and this differs from the 2011/ 12 minimum CIT, certain assets have to be disregarded in order to make sure that the minimum CIT does not contravene Double Tax Treaties. The book value of assets which generate or may generate income whose exclusive taxation right belongs to a country with which Luxembourg has concluded a DTT have to be disregarded, ie removed from the total balance sheet. Assets which have to be disregarded are, for example, real estate located in a DTT country or a permanent establishment located in a DTT country. Once these exempt assets have been removed, the 90% financial assets test has to be made.
If the Luxembourg tax resident company holds 90% or less of financial assets, it will be subject to a minimum CIT varying between EUR 500 and EUR 20,000, depending on the size of its balance sheet.
Also published in Thomson Reuters' Taxnet Pro, 17 October 2013
The Luxembourg tax authorities have released a Circular which aims at clarifying certain practical issues when applying the new rules on minimum CIT, a distinction being made between the regime which applied in 2011 and 2012 and the one applicable since 2013. Since the law and the related commentaries left many questions open, this long awaited Circular is very welcome. The Circular deals with both the regime applicable since 2013 and the one applicable before, given that the tax years 2011 and 2012 may not have been assessed yet.