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Luxembourg Announces Corporate Tax Cut

by Ulrika Lomas,, Brussels

02 March 2016

The Government of Luxembourg has announced a package of tax measures due to be introduced next year, including a corporate tax cut and changes to the personal income tax system.

On the corporate tax side, the Government is planning to phase in a three percent decrease in the headline corporate tax rate, starting with a two percent cut to 19 percent on January 1, 2017. From January 2018, the rate will fall to 18 percent. In addition, a lower rate of 15 percent will be available to "young, innovative companies" with annual taxable income not exceeding EUR25,000 (USD27,000) per year.

However, the ability of companies to carry forward past losses to offset against future income will be restricted from 2017. Existing law permits unrestricted loss carry forwards. From next year, accumulated losses may only be carried forward for 10 years and used to offset a maximum of 80 percent of profits.

On the personal income tax side, the Government intends to abolish the temporary 0.5 percent crisis tax in 2017, and make the income tax system more "equitable" by reducing tax rates at the lower end of the scale. However, those on high incomes will be expected to pay more, with the introduction of a new tax bracket of 41 percent on income exceeding EUR150,000, and a new top rate of 42 percent to apply to income over EUR200,000. Individuals will also see withholding tax on interest doubled to 20 percent next year.

TAGS: tax | interest | law | corporation tax | Luxembourg | tax rates | withholding tax | tax reform | individual income tax

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