Luxembourg Publishes Anti-Crisis Bill

by Ulrika Lomas, Tax-News.com, Brussels

03 August 2010

Luxembourg’s finance ministry has published the bill introducing tax measures relating to the financial and economic crisis, designed to balance the public finances.

The bill amends both the modified law from December 4, 1967, regarding personal income tax and the modified law from June 30, 1976, regarding the creation of an employment fund. The bill also introduces a crisis contribution and amends the modified law of July 30, 2002, determining the various fiscal measures to encourage both the selling and purchasing of building land and residential property.

As regards income tax (l’impôt sur le revenu des personnes physiques), the bill introduces the following changes:

• A new top rate of income tax of 39% is introduced above the current maximum rate of 38% and applies to income of EUR41,793 for class 1 income (tax 'classes' in Luxembourg apply in respect of familial and residential status).
• The maximum special rate of depreciation accorded to companies investing in environmental or energy-saving initiatives is increased from 60% to 80%.
• A ceiling is imposed as regards the tax deductibility of severance pay. Severance pay in excess of EUR300,000 will no longer be tax deductible.

Regarding corporate tax (l’impôt sur le revenu des collectivités), the bill provides for a minimum levy of EUR1,500 imposed on organizations of a collective nature whose activity is not subject to approval from a minister or supervisory authority and where the sum of financial assets, securities and banking assets exceeds 90% of the total balance.

The bill introduces a 0.8% “crisis contribution” (contribution de crise) for 2011 and 2012, payable by all individuals and imposed on all earned income, the product of which will flow directly to the state. The monthly tax base is reduced, however, by an amount corresponding to the monthly minimum wage for unskilled workers aged 18 or under, in certain circumstances.

Amending the modified law from June 30, 1976, the bill provides that the solidarity tax (l’impôt de solidarité) imposed on individuals will be increased from 2.5% to 4%. Regarding taxable income in excess of EUR150,000 for class 1 and 1a and taxable income of EUR300,000 for class 2, the contribution rate for the country’s employment fund is to rise to 6%. The contribution to the employment fund payable by collectives is also to increase by 1%, rising from 4% currently to 5%.

The measures contained in the law are due to apply from the 2011 tax year.

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