Luxembourg tax changes 2015

Draft legislation introduced to the Luxembourg Parliament

In mid-October, two draft laws were presented to the Luxembourg Parliament:

  • On 14 October, bill no. 6722, which contains measures to secure the future of Luxembourg for the years 2015-2018 and which was presented under the name "Zukunftspak" by Prime Minister Xavier Bettel
  • On 15 October, bill no. 6720, the draft budget for 2015 submitted by Finance Minister Pierre Gramegna.

The major changes that were announced are explained below.


Amendmends to indirect taxes

VAT rates are going to rise by 2%, only the lowest tax rate of 3% will remain unchanged, resulting in the following increases

  • the standard rate will be increased from 15% to 17%
  • the reduced rate of VAT will rise from 12% to 14%
  • the super reduced tax rate will go up from 6% to 8%.

In addition, the following changes relating to certain categories of goods and services are announced:

  • The import of antiques and collectibles, which is currently subject to a VAT rate of 15%, will be taxed with 8% when the changes take effect
  • VAT on construction services for owner-occupied properties remains unchanged at 3%. The VAT rate for real estate intended for rent, however, will rise from 3% to 17%. There will be a transitional arrangement permitting a VAT rate of 3% until the end of 2016 if an application is made before 1 January 2015 with the responsible authority.
  • A VAT rate of 3% is applied to shoes, accessories and clothes for children under 14 years of age.
  • The VAT rate for restaurants remains unchanged at 3%, but will no longer apply to alcoholic beverages. Here the tax rate of 3% will be increased to 17%. 

Regarding VAT refund claims, time limits will be imposed on the tax and revenue authorities within which claims for reimbursement are due. Failure to meet these deadlines will trigger interest payments on the refund claim.


Amendments to direct taxes

The corporate income tax rate remains unchanged. But the minimum corporate income tax rules are changed with a view to relieving the burden on small companies and companies without substantial activities. Currently Luxembourg imposes a minimum amount of EUR 3,210 for corporation tax on companies that have not applied for trading authorization but have financial assets (participations, transferable securities, loans to participations, investments in real estate partnerships, cash and cash equivalents) exceeding more than 90% of the total assets. The minimum taxation typically affects holding and financing companies. From 2015 on, this minimum taxation of EUR 3,210 will only take effect if, in addition, total assets exceed an amount of EUR 350,000. If this additional amount is not exceeded, the lower minimum tax amount for non-financial companies in the amount of EUR 535 will apply.

Moreover, new tax rules will be introduced regarding transfer pricing, which will be modeled more closely on the third comparison (arm's length principle) and also on the OECD Model Convention. In particular, there will be a reversal of the burden of proof in the absence of proper transfer pricing documentation.

Rules governing advance tax confirmations from the tax authorities will be laid down in detail in the tax code with a view to unifying and streamlining the currently existing procedures and to increasing the transparency of the Luxembourg tax system. As of 2015, tax authorities may impose a fee of up to EUR 10,000 for mandatory preliminary information which is supposed to cover administrative  costs.

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