Luxembourg corporate taxpayers can, upon request and under certain conditions, benefit from a reduction of the Luxembourg net wealth tax (NWT). One of the conditions to benefit from the NWT reduction is the allocation of an amount corresponding to five times the NWT reduction claimed to a special NWT reserve to be created in the balance sheet. To benefit from a 2018 NWT reduction, taxpayers will have to make the allocation prior to the end of 2018. Therefore, now is the time for them to determine whether they meet the conditions to benefit from the reduction, compute the amount of the reduction they may request and take the necessary steps to make an appropriate allocation to the NWT reserve on time.
What is the NWT and how is it computed?
The NWT is levied annually on the fair market value of resident and non-resident opaque companies’ net assets as at 1 January of each year. In practice, as a simplification measure and even for companies with an accounting period which does not correspond to the calendar year, the NWT may be computed based on the year-end balance sheet of the preceding accounting year. The net assets correspond to the total assets (taking into consideration their fair market value) reduced by the liabilities of the company. While resident companies are taxed on their global assets, non-resident companies are taxed only on their net wealth held in Luxembourg.
The rate of Luxembourg NWT is 0.5% on the portion of the net wealth lower or equal to EUR 500 million and 0.05% on the portion of the net wealth exceeding EUR 500 million.
Since 1 January 2017, Luxembourg companies are subject to either the NWT as per the unitary value or a minimum NWT varying between EUR 535 and EUR 32,100, whichever amount is the highest. The amount of the minimum NWT is to be reduced by the amount of corporate income tax (including the solidarity surcharge, the “CIT”) of the preceding tax year.