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Keith O’Donnell |
Samantha Merle |
The new Luxembourg government has released its programme, which includes positive tax measures and, more generally, contains encouraging messages for Luxembourg as a competitive location for business. Even if these are only announcements that will have to pass through the legislative process, many of the measures reflect a strong willingness of the government to make sure that Luxembourg remains a competitive jurisdiction within and outside the EU.
Luxembourg has over the last years run deficits and incurred government debt, although both at very modest levels by international standards. To restore budgetary stability, the government will prioritise cost reduction and growth, instead of increasing tax rates. In addition, compliance deadlines will be tightened and self-assessment will be introduced to accelerate collection of taxes.
Tax policy will be guided by the objective of creating confidence in a stable, predictable system. The only tax the government intends to increase is VAT, where the rate will, as expected, be increased to compensate the future loss in VAT revenues in the e-commerce sector. The government has committed to make sure that the Luxembourg VAT rate will remain the lowest in the EU however.
The government announced it will seek to attract headquarters of international groups, upgrading the intellectual property tax system, the parent subsidiary exemption regime, transfer pricing and substance rules, while making sure that Luxembourg is in line with all EU and OECD standards. A regime of notional interest deduction is also planned to stimulate businesses to increase their equity funding.
The government intends also to make sure that the Luxembourg legal and tax system in place is improved in such a way that it is in line with the needs and expectations of the marketplace and investors. Two measures illustrate this: the government announced that Luxembourg will formalise its ruling/advance tax agreement (ATA) practice, which should make the ATA system more efficient. In addition, to be aware of the needs of the market place, the government will establish an advisory committee of tax experts which will make concrete proposals to adapt the tax system to the needs of businesses/investors.
As far as the financial sector is concerned, the good news is that, contrary to what has been reported occasionally, the subscription tax due by undertakings in collective investment, be they alternative investment funds (AIFs), undertakings for collective investment in transferable securities (UCITS) or specialised investment funds (SIFs), will not be increased. Finally, the favourable carried interest regime which was introduced recently within the scope of the AIFM Directive is planned to be extended to all new investment funds set up in Luxembourg. Net wealth tax for individuals will not be reintroduced.
Luxembourg will remain against the introduction of a financial transaction tax at the level of the EU, but may agree to introduce one if this is done at global level.
The new Luxembourg government has released an ambitious programme with a lot of positive tax measures, which are welcome. Even though it remains to be seen how the tax measures will be implemented in practice, they reflect a clear aim to make sure that Luxembourg remains competitive.
Keith O'Donnell (keith.odonnell@atoz.lu) and Samantha Merle (samantha.merle@atoz.lu)
ATOZ – Taxand
Tel: +352 269 401
Fax: +352 269 40 300
Website: www.atoz.lu
