Luxembourg Tax Alert 2019-07 - KPMG Luxembourg
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Luxembourg Tax Alert 2019-07

Luxembourg Tax Alert 2019-07

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2019 budget bill passed

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:

Individual tax measures

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.

Corporate tax measures

Interest limitation

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.

VAT measures

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.

KPMG Luxembourg comment

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).

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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