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Luxembourg Government reveals business friendly programme


The new Luxembourg Government has released its programme, which includes positive tax measures and, more generally, contains encouraging messages for Luxembourg as a competitive location for business. Taxand Luxembourg discusses what this new programme will look like.

Luxembourg has over the last years run deficits and incurred Government debt, although both at very modest levels by international standards. In order to restore budgetary stability, the Government will prioritise cost reduction and growth, instead of increasing tax rates. In addition, compliance deadlines will be tightened and self-assessment will be introduced in order to accelerate collection of taxes.

Tax policy will be guided by the objective of creating confidence in a stable, predictable system. The only tax the Government intends to increase is VAT, where the rate will, as expected, be increased to compensate the future loss in VAT revenues in the E-commerce sector. The Government has committed to make sure that the Luxembourg VAT rate will remain the lowest in the EU however.

The Government announced it will seek to attract headquarters of international groups, upgrading the intellectual property tax system, the parent subsidiary exemption regime, transfer pricing and substance rules, while making sure that Luxembourg is in line with all EU and OECD standards. A regime of notional interest deduction is also planned to stimulate businesses to increase their equity funding.

The Government intends also to make sure that the Luxembourg legal and tax system in place is improved in such a way that it is in line with the needs and expectations of the market place and investors. The Government announced that Luxembourg will formalise its ruling/advance tax agreement (ATA) practice, which should make the ATA system more efficient. In addition, in order to be aware of the needs of the market place, the Government will establish an advisory committee of tax experts which will make concrete proposals in order to adapt the tax system to the needs of businesses/investors.

Finally, the favourable carried interest regime which was introduced recently within the scope of the AIFM Directive, is planned to be extended to all new investment funds set up in Luxembourg. Net Wealth Tax for individuals will not be reintroduced. Luxembourg will remain against the introduction of a Financial Transaction Tax at the level of the EU but may agree to introduce one if this is done at global level.

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Your Taxand contact for further queries is:
Keith O'Donnell
T. +352 26 940 257

Taxand's Take

Even if these are only announcements that will have to pass through the legislative process, many of the measures reflect a strong willingness of the Government to make sure that Luxembourg remains a competitive jurisdiction within and outside the EU. The Government wants to make sure that Luxembourg will keep on attracting new investments and will take the necessary steps to motivate existing investors to keep Luxembourg as their jurisdiction of choice in the future. Even though it remains to be seen how the tax measures will be implemented in practice, they reflect a clear aim to make sure that Luxembourg remains competitive.


Taxand's Take Author

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