Luxembourg Confirms Key Changes For 2011

by Ulrika Lomas, Tax-News.com, Brussels

07 January 2011

Luxembourg’s government has recently announced details of key changes to its tax laws from January 1, which directly concern both individuals and companies in Luxembourg, and which include notably the introduction of a ‘crisis contribution,' a new top rate of marginal income tax, and an increase in the country’s solidarity tax.

According to the administration, the majority of the grand ducal laws and regulations, which entered into force on January 1 are linked to the economic and financial crisis. The measures were announced by Luxembourg’s Prime Minister Jean-Claude Juncker on May 5, 2010. Launched within a difficult economic context, the new fiscal measures are designed to consolidate the country’s public finances.

On December 2, 2010, Luxembourg’s Chamber of Deputies voted to adopt bill number 6166 providing for the introduction of tax measures pertaining to the financial and economic crisis. The measures are expected to have a total impact on Luxembourg’s central administration budget of EUR650m.

The key changes contained in the bill and now in force are as follows:

• The main change is the introduction of a crisis contribution of 0.8% in 2011 to be levied on all income, not only on income from wages but also on income from rent, dividends and on other types of income, subject to a deduction corresponding to the minimum social wage;
• A new top rate of marginal income tax of 39% is introduced, in addition to the existing top rate of tax of 38%. The new rate will be applied 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);
• The solidarity tax paid by individuals (contribution to the employment fund) rises 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 increases to 6%;
• The contribution to the employment fund for corporations increases from 4% to 5%;
• In a bid to encourage companies to realize investments in the interest of protecting the environment and of making energy savings, the fiscal measures pertaining to depreciation have been improved. The maximum rate of special depreciation applied to investment acquisitions has risen from 60% to 80%;
• Designed to increase the competitiveness of companies, the tax credit rate for global investment as well as the tax credit accorded for additional investments have risen by 1%. The government has therefore increased the tax credit rate for supplementary investment from 12% to 13%. The rate for global investment has been increased from 6% to 7% for the first part of the investment not exceeding EUR150,000 and from 2% to 3% for the portion of the investment exceeding EUR150,000;
• From January 1, a ceiling will 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;
• A minimum tax of EUR1,500 is 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.
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