Luxembourg introduces tax relief package for corporates and individuals

Below are brief descriptions of the main measures that appear in the Bill.

1. Corporate Income Tax (CIT) reduction

Reduction of the maximum CIT rate from 17% to 16%. For smaller companies, the reduction is from 15% to 14%. 

The overall combined corporation tax burden (including municipal business tax and the contribution to the employment fund) for a company in Luxembourg City would thus be lowered from 24.94% to 23.87%, bringing the overall corporate tax rate in line with the OECD average. 

Expected effective date: January 1, 2025 

2. ETF UCITS

Exemption from the subscription tax for actively managed ETF UCITS. 

Expected effective date: First day of the quarter following the publication of the law 

3. Complete overhaul of the tax regime for highly skilled and qualified impatriate workers

Elimination of the current regime that only allows tax breaks for certain incurred expenses in relation with an employee’s relocation to Luxembourg. The current regime remains available for employees already benefiting therefrom, unless they opt for the new regime. 

Introduction of a 50% tax exemption up to EUR400,000 of the gross annual compensation (not including tax exempt benefits and benefits in kind) of impatriate employees. 

The benefit would be available for a duration of eight years. 

Eligibility conditions remain unchanged. These include: 

• The impatriate still must not have been a tax resident in Luxembourg or have lived less than 150km away from the Luxembourg border in the past. 
• The impatriate must earn a gross annual salary of at least EUR75,000. 
• No more than 30% of the company’s employees may benefit from the impatriate regime. 

This regime is inspired by attractive schemes implemented in other EU countries, including Italy.

Expected effective date: January 1, 2025

4. Profit-participating bonus (prime participative)

The current profit-participating bonus, which is a deductible expense for the employer, allows the employee to exclude 50% of the received bonus from their taxable income (this remains unchanged).

However, under the Bill, the regime becomes more attractive in light of the following aspects:

• The overall envelope that an employer can allocate to employees as part of this scheme would increase from 5% to 7.5% of their business profits of the preceding year.
• The exempt part of the bonus granted to employees would increase from 25% to 30% of their gross annual compensation.

Expected effective date: January 1, 2025

5. A new Young Employee Bonus

The Bill would introduce a new 75% tax exemption on bonuses awarded to young employees. Young employees are those under 30 years on 1 January of the given tax year, earning less than EUR100,000 gross annual compensation.

The capped bonuses to which the 75% tax exemption applies are as follows:

This bonus is contingent upon holding a first permanent employment contract (contrat à durée indéterminée).

The exemption is available for five years, provided the employee remains with the same employer and all other conditions of the regime are met each year.

Expected effective date: January 1, 2025

6. Personal income tax reductions

Adjustment of the tax scale for inflation, with an increase of 2.5 index brackets.

The threshold under which income is tax exempt will be raised from EUR12,438 to EUR13,230.

The threshold upon which the top tax rate of 42% applies would be raised from EUR220,788 to EUR234,870.

Expected effective date: January 1, 2025

Tax reduction for taxpayers in tax class 1a – widowed or over 64 years old on 1 January of the given tax year.

Expected effective date: January 1, 2025

Increase of the single-parent tax credit (credit d’impôt monoparental). from EUR2,505 to EUR3,504.

Expected effective date: January 1, 2025

Increase of the allowance for a child not part of the household from EUR4,422 to EUR5,424.

Expected effective date: January 1, 2025

Introduction of an overtime tax credit with a cap of EUR700/year for cross-border employees who are subject to taxation in their country of residence on wages related to overtime hours despite a full exemption in Luxembourg.

Expected effective date: January 1, 2024 (retroactive)

7. Family wealth management company (SPF or Société de gestion de Patrimoine Familial)

Modernization of the procedural framework with the introduction of the possibility of imposing administrative fines for certain breaches.

Expected to be applicable only to breaches that occur after the entry into force of the law

Increase of the minimum annual subscription tax amount from EUR100 to EUR1,000.

Expected effective date: First day of the quarter following the publication of the law

This Bill may be further amended. It will only come into force upon parliamentary approval and official publication.

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Please note that the information contained herein is a summary and not intended to be exhaustive and to be relied upon. It only focuses on selected points and is not a comprehensive coverage of the Bill.