Luxembourg Adopts 'Crisis Tax'

by Ulrika Lomas, Tax-News.com, Brussels

10 December 2010

Luxembourg’s Chamber of Deputies has recently voted to adopt bill number 6166 providing for the introduction of tax measures pertaining to the financial and economic crisis.

Adopted by the governing council on July 9, the bill aims to implement fiscal measures designed to balance the public finances and to introduce a new levy, notably the ‘crisis contribution’ (la contribution de crise).

The key tax initiatives contained in the bill are as follows:

• The top rate of marginal income tax is to rise by 1% to 39%. The new rate is to apply to income of EUR41,793 and over for class 1 income, and to income of EUR83,586 and over for class 2 income (tax ‘classes’ in Luxembourg apply in respect of familial and residential status);
• To encourage companies to realize investments in the interest of protecting the environment and of making energy savings, the government has decided to improve the tax measures accorded for depreciation, and the maximum special rate of depreciation applied to such investments is to rise from 60% to 80%;
• A ceiling is to be imposed on the tax deductibility of severance pay in order to limit the impact of excessive severance pay on the employer’s taxable base. Therefore, severance pay or golden handshakes granted to employees and in excess of EUR300,000 will no longer be tax deductible;
• In a bid to strengthen the competitiveness of companies, the tax credit rates for both global investment and for additional investments are to rise by 1%;
• The solidarity tax paid by individuals is to increase from 2.5% to 4%. For taxable income in excess of EUR150,000 for class 1 and 1a, and EUR300,000 for class 2, the rate of the contribution to the employment fund is to increase to 6%;
• A new crisis contribution is to be levied on individuals, and is to be imposed on all professional income, replacement income as well as on income from assets. The rate of the crisis contribution is fixed at 0.8% for 2011. Initially, the government had planned to levy the crisis tax in 2011 and in 2012. However, following the bipartite agreement signed on September 29 between the government and employee organizations, the tax will now only apply in 2011;
• The solidarity tax (contribution to the employment fund) levied on corporations is to increase from 4% to 5%;
• A minimum tax of EUR1,500 is to be introduced for organizations of a collective nature whose activity is exempt from licensing and where the sum of financial assets, transferable securities and cash at bank exceeds 90% of the total balance sheet.

The measures proposed by the government are expected to have a total impact on the central administration budget of EUR650m and are due to enter into force from January 1, 2011.

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