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Gramegna Confirms Luxembourg Corporate Tax Cut

by Ulrika Lomas,, Brussels

25 April 2016

Luxembourg Finance Minister Pierre Gramegna confirmed to parliament on April 21 that the Government will gradually reduce the rate of Luxembourg's corporate tax, but proposed restrictions to loss rules have been tweaked.

Reaffirming plans first announced by the Government on February 29, 2016, Gramegna said that corporate tax would be cut from its existing rate of 21 percent to 19 percent in 2017, and further reduced to 18 percent in 2018. Also, the rate of IRC will be cut to 15 percent for small companies with annual taxable income not exceeding EUR25,000 (USD28,000).

Gramegna also announced an adjustment to proposed restrictions to the carrying forward of past losses by companies. The original proposals would have permitted accumulated losses to be carried forward for 10 years and used to offset a maximum of 80 percent of profits. However, Gramegna told parliament that loss rules would be "supervised more strictly" from 2017, and while companies will be permitted to carried forward losses for 17 years from next year, they can be used to offset only 75 percent of profits. Under existing rules, losses can be carried forward indefinitely and used to offset 100 percent of profits.

Luxembourg's tax credit for investment will also be improved, the Finance Minister confirmed. Under current rules, a 12 percent tax credit is available for investments in depreciable tangible assets made during the tax year. In addition, there is a seven percent credit on the first EUR150,000 of new qualifying investment made during the year, falling to two percent on qualifying investment exceeding this threshold. Under the new proposals, the first two tax credits will increase to 13 and eight percent, respectively. The two percent rate will remain unchanged.

The Finance Minister also announced that working groups will be established to examine a range of issues affecting the competitiveness of start-ups and small- and medium-sized enterprises in Luxembourg.

However, Gramegna also said that the Government would monitor international tax developments to ensure that its corporate tax rules remain compatible with changes brought about by the OECD's base erosion and profit shifting (BEPS) work and proposals at European Union-level.

"The Government will closely monitor international developments, including the realization of the transposition of BEPS rules in the European Union," he said, adding that the Government will "consider the adjustments that will be necessary if necessary, in consultation with business. The aim is to ensure that the Luxembourg tax system is attractive, while respecting all European and international rules and standards in the spirit of the 'level playing field.'"

TAGS: Finance | tax | investment | business | tax incentives | corporation tax | Luxembourg | tax credits | transfer pricing | tax rates | standards | Europe | BEPS

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