Fiscal changes in 2017 for Luxembourg

On 14 December 2016, the draft tax reform for 2017 was approved by the Luxembourg Parliament and then adopted on 23 December 2016. The new fiscal measures for businesses and private individuals came into effect from 1 January 2017. In this article, the most important Luxembourg reforms are listed.

Companies

The corporate income tax rate will drop from 21% to 18% in 2018. Specifically, this relates to the following thresholds:

• Taxable profits € 30,000:
• 19% from 2017 onwards
• 18% from 2018 onwards

• Taxable profits between € 25,000 and 30,000:
• € 3,750 + 39% of taxable profits above € 25,000 from 2017 onwards
• € 3,750 + 33% of taxable profits above € 25,000 from 2018 onwards

• Taxable profits >€ 30,000:
• 19% from 2017 onwards
• 18% from 2018 onwards

The carry-over of losses will then be limited to a maximum period of 17 years instead of carry-forward for an unlimited period. This limitation applies only for losses arising from 2017 onwards. A FIFO principle is also applied, whereby the oldest tax losses must be carried forward first.

A minimum net wealth tax had already been introduced, effective from 1 January 2016 and in the recent fiscal reforms, the minimum amount of € 3,210 was increased to € 4,815, including the solidarity tax for holdings and finance companies.
In addition, the various regimes for tax-free allowances relating to investments rose by 1%.

Finally, from now onwards it is possible - and also a requirement - to electronically submit corporate tax returns.

Private individuals

As a result of the fiscal reform, the highest rates of income tax saw an increase.For incomes above € 150,000, the rate has increased to 41%; for incomes above € 200,004, the rate has increased to 42%.

The maximum mortgage interest tax deduction for mortgages on the principal residence has increased as follows:

• from € 1,500 to € 2,000 for the first and the following 5 years,
• from € 1,125 to € 1,500 for the next 5 years,
• from € 750 to € 1,000 for the remaining years.

Rental income generated from recognised social housing associations will enjoy a 50% tax exemption in order to encourage the supply of social housing.

In addition, young people aged between 18 and 40 years can benefit from a higher tax allowance for contributions they make to a home savings plans, i.e. the tax allowance has been increased from € 672 to € 1,344.

The tax allowance for contributions towards the education and maintenance costs for a child that is not part of the taxpayer's family has been raised from € 3,480 to € 4,020 per child per year.

The flat-rate allowance for costs incurred in Luxembourg (cleaning, childcare, etc.) increased from € 3,600 to € 5,400 per year.
The nominal value of luncheon vouchers rose from € 8.40 to € 10.80.

There is an annual tax allowance of up to € 3,200 for all taxpayers who are saving for their retirement.

From 1 January 2018, married persons and legal cohabitants can choose whether or not to be taxed individually or jointly.

Finally, married people who are non-resident, will be taxed in class 1 as standard from 1 January 2018, unless at least 90% of their worldwide income is taxed in Luxembourg and they ask for a tax regime as if they are residents. In that case, they may be taxed in class 2.