Sustainability, justice, selectivity and competitiveness,
were the hallmarks of Luxembourg's tax reform approved in
December 2016. Amendments and targeted tax rate reductions, for
both individuals and corporations, became effective on January
1 2017. The measures should help maintain Luxembourg's
competitiveness as a location for companies to do business, but
the government should continue to adopt additional tax reform
measures to continue its progress.
The gradual reduction of the corporate tax rate, in
particular, is welcome. For taxable income exceeding
€30,000 ($32,000), the rate in 2017 is 19% (reduced from
21%) and will decrease to 18% in 2018. Thus, for a company
located in Luxembourg City with taxable income exceeding
€30,000, the tax rate will be 27.08% in 2017 (29.22% in
2016). Taking into account the corporate tax, the municipal
business tax and the contribution to the employment fund, the
rate for a company in Luxembourg City with taxable income
exceeding €30,000 will be 27.08% in 2017 (29.22% in 2016).
This rate will fall to 26.01% starting in 2018.
New EU tax rules and international tax guidelines, such as
those relating to the OECD's BEPS Project, which was launched
to combat tax base erosion and profit shifting, feature
prominently in an increasingly globalised world. These
measures, which are focused on promoting transparency,
consistency and taxation in accordance with economic substance,
represent unprecedented changes to the normative framework for
taxation. Because taxation is a vector for competitiveness and
growth, many are predicting that these changes to the tax rules
will increase competition between countries.
If a country is to remain competitive, further reduction of
the corporate tax rate should be considered, in addition to
other tax measures.
For an example of one such measure, consider a tax regime
that benefits intellectual property, such as an IP box regime.
These types of regimes, applicable in many countries, including
Luxembourg, recently have been abolished in some cases where
the regime was not in line with the recommendations under the
BEPS Project, with the possibility for companies that benefited
from the regime before a certain date with certain conditions
to continue under the regime until 2021. Some countries already
have adopted new regimes in line with the new international
standards. Despite the fact that Luxembourg has not yet taken
similar measures, the attractiveness of Luxembourg is extremely
high for alternative asset managers. A number of big players in
the private equity, infrastructure, and hedge funds world have
recently made some announcements about setting up their
platform in Luxembourg – both their management entity
and their investment funds. In addition, to stable tax policies
and full compliance with the OECD tax framework, those fund
managers have certainly taken the benefits of EU "passporting"
of their funds into account as soon as their platform is
registered in Luxembourg. It is, nevertheless, expected that
the Luxembourg government should quickly put the announcements
made in 2016 concerning additional tax reform into practice.
These measures should include, among other items, a greater
reduction in corporate taxation and the establishment of a new
regime favourable to intellectual property, while respecting
the new international tax guidelines.
Raymond Krawczykowski (firstname.lastname@example.org)
Tel: +352 451 454 904