Luxembourg Unveils Ambitious Tax Proposals

by Ulrika Lomas, Tax-News.com, Brussels

22 April 2010

Luxembourg’s Finance Minister Luc Frieden has recently unveiled details of the government’s ambitious proposals to reduce spending and to increase tax revenue, in a bid to achieve a balanced budget by 2014, and to maintain public debt at a manageable level.

Eager to generate additional tax revenue of around EUR200m, the government has outlined the following proposals:

• To increase the maximum tax rate from 38% to 39%.
• To introduce a special tax rate of 42% for annual income in excess of EUR250,000.
• To fix a ceiling on tax deductions for businesses electing to issue bonus payments or “golden handshakes”.
• To increase the 4% solidarity tax and to introduce a 'crisis tax.'
• To introduce a tax on financial activities (following an agreement at European level).

The proposals are likely to prove controversial and to meet with some resistance. It remains to be seen whether they will make it through in their current form.

Additionally, Luxembourg’s government does not intend to raise tax thresholds with inflation, and has no intention of cutting the rate of corporate tax.

The government has confirmed that a review will take place in 2012 to evaluate the measures taken in light of the general development of the country’s economic and financial situation.

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