On 25 April 2019, the Luxembourg Parliament passed the law (the Law) on the 2019 budget law. A request to dispense with the second vote has been filed.
As mentioned in our previous newsletter, bill 7450 — implementing, among others, the main tax measures announced late-2018 by the Luxembourg government into Luxembourg domestic law — went before the parliament in March this year.
Since then, no material amendments to the bill have been made.
As such, the Law enacts, inter alia, the additional provisions on interest limitation and fiscal unity, the decrease in the global corporate tax rate, as well as the extension of the super-reduced VAT rate (3%).
As a reminder:
From a personal tax perspective, the budget foresees the setup of a minimum social salary tax credit (« crédit d'impôt salaire social minimum (CISSM) »). The purpose of this credit will be to increase the minimum social salary by €100 net per month, retrospectively as of 1 January 2019.
The bill dated 5 March 2019 was conditioning this tax credit to the possession of a tax card by the taxpayer; however, the Law removes this condition and allows the taxpayer who does not hold a tax card to request this CISSM during the following year.
The option that was offered by the EU Anti-Tax Avoidance Directive (ATAD 1) to apply the interest limitation rule at the level of the fiscal unity is now implemented in Luxembourg tax law through the amendment of the fiscal unity regime.
Corporate taxpayers under the fiscal unity regime will have the option to apply the interest limitation rule on either a tax consolidated or a standalone basis. These new provisions should apply to financial years starting from 1 January 2019.
Decrease in the global corporate tax rate
The corporate income tax rate decreased by 1 percentage point, from 18% to 17%. This should lead to a global corporate tax rate of 24.94% for companies established in Luxembourg City as from the tax year 2019.
In addition, the tax base subject to the reduced 15% corporate income tax rate should be broadened from €25,000 to €175,000, leading to a global corporate tax rate of 22.80% for such portion of income for companies established in Luxembourg City as from the tax year 2019.
The main VAT measures relate to the extension of the super-reduced rate (3%), in particular to electronic books, publications and online press, finally aligning the VAT rate applicable to all publications notwithstanding their format. From now on, this super-reduced VAT rate should also apply to essential hygienic items (i.e. tampons and sanitary pads).
Finally, plant protection products authorized for organic agriculture should benefit from the application of the reduced VAT rate of 8%.
These measures should apply from 1 May 2019.
Please refer to our Luxembourg Tax Alert 2019-03 for more details on all these measures.
As previously mentioned, the proposed measures reflect the Luxembourg government’s commitment for a balanced and competitive tax policy.
Especially, one must welcome the application of the interest limitation rule at the level of a fiscal unity, although additional guidance on this rule (for example, its application to securitization vehicles) would have been appreciated (but is still expected).
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