|Keith O’Donnell||Samantha Merle|
EU Savings Directive: Automatic exchange of information
Interest income paid by a Luxembourg paying agent to an individual resident in another EU member state triggers a 35% withholding tax, unless the individual opts for exchange of information. The Luxembourg government announced that, in the light of recent international developments, such as the US Foreign Account Tax Compliance Act (FATCA), the "time has come to revisit the transitional coexistence of automatic exchange of information and withholding tax". Automatic exchange of information will apply as of January 1 2015 to EU resident individuals falling within the scope of the EU Savings Directive. The situation of Luxembourg resident individuals will remain unchanged (final taxation at source at 10%).
Increase of VAT rate as of 2015
With a 15% standard VAT rate, Luxembourg is the country applying the lowest VAT rate within the EU. Favourable VAT treatment still applies until 2015 to certain e-business transactions. With the anticipated end of this regime in 2015, expecting to generate losses in VAT revenues and considering the economical context, the government announced that an increase of VAT rate would be necessary.
The increase will occur only as from 2015 and will be implemented in such a way that Luxembourg will remain the country applying the lowest VAT rate in the EU.
Other changes: Taxation of real estate/housing amended
The prime minister announced an increase in the taxation of capital gains on the sale of land and the repeal of the interest subsidies for housing (bonification d'intérêts).
To avoid or at least reduce the number of vacant residential units, a specific tax will also be introduced.
The changes to banking secrecy, while sometimes portrayed as a seismic shift, are an inevitable move, given the international environment and the economic context. There will be a need to adapt banking systems to accommodate the information flows.
The increase in VAT will be a significant revenue raiser; however, it will be of limited consequence to most businesses as it is borne principally by consumers. It will increase the importance of carefully managing VAT issues however, notably in businesses that have limited VAT recovery.
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