Luxembourg:
Luxembourg budget law adopted in 2021, new tax measures introduced
December 18, 2020
Arendt & Medernach
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A request for exemption from the second round of voting was made
submitted to the State Council. Most of the provisions come into force
on January 1, 2021. The most notable tax measures (more details on the provisions can
can be found here_) the new law contains:
– – A new "participation bonus" regime for
Employees (benefit from a 50% tax exemption among some
Conditions). This replaces the current stock option regime (as
detailed in circular no. 104/2 of November 29, 2017)
abolished with effect from the 2021 financial year. Whether the tax
The authorities will issue a circular to this effect
Regime has yet to be confirmed.
– – Change the system for highly skilled and
qualified workers (Impatriates), including the option for
Employers to grant an "impatriation bonus" that benefits from it
from a tax exemption of up to 50% (under certain conditions) for a
Amount that does not exceed 30% of the year of the impatriate concerned
Compensation. This measure includes the repeal of the circular
No. 95/2 of January 27, 2014 on the current tax regime,
with effect from the 2021 financial year. Employees who benefit from it
the circular repealed and its Luxembourg employment began during
The period 2016-2020 will still be able to apply the old one
Circular (under certain conditions).
– – Reduced subscription tax for sustainable investments
mediumat a rate that decreases depending on the degree
of investing in sustainable activities in the sense of
Article 3 of Regulation (EU) 2020/852 of June 18
2020.
– – A flat real estate tax of 20% on the gross
income (Rents and capital gains) derived from real estate
located in Luxembourg by SIFs, UCIs and RAIFs. In addition, until 31
In May 2022, every SIF, RAIF and UCI must declare whether they have held
Real estate in Luxembourg (directly or through a transparent
Companies) in 2020 and 2021. If a fund does not report in a timely manner, the
The tax administration can impose a flat-rate fine of EUR 10,000.
Structures through which real estate is held outside of Luxembourg
and funds that are considered transparent for Luxembourg tax purposes
remains unaffected by this measure. In addition, the 20% tax
does not apply if Luxembourg real estate is wholly owned by one
Taxable domestic or foreign company.
– – Final enactment of an expected limitation of
SPFswho can no longer hold real estate
through partnerships or other tax-transparent companies from 1
July 2021.
– – Increase in the land acquisition rate
VAT levied on contributions from Luxembourg real estate
the share capital of Luxembourg civil or commercial companies
a current aggregate of 1.1% to 3.4%.
– – Change of tax consolidation system
to enable a group to benefit from "vertical consolidation"
to form a new group that is integrated by "horizontal"
Consolidation "without negative tax consequences for the
individual members of the tax consolidation group, subject
Conditions and until the 2022 financial year.
Final remarks
The proposed measures are mainly driven by COVID-19
Crisis and the resulting budget constraints and the will to do so
ensure social fairness. Contrary to some expectations, the
The government made a conscious decision not to increase or introduce new ones
Taxes that would hamper the rapid recovery of the local population
Economy.
The modified impatriate regime was used as a tax competitiveness measure
could prove to be an effective tool in practice: employers who
have moved their activities to Luxembourg or are considering doing so
So the impatient regime may be particularly attractive at
in terms of relocating their employees.
The government had long announced its plan to reform the rules
in relation to real estate located in Luxembourg. However, it is
important to highlight the limited scope of the new measures in this context
Respect. In particular, the new 20% tax will have no effect
Europe-wide real estate funds (which regularly use the Luxembourg fund
Structures), if these do not apply
Real estate assets in Luxembourg.
How can we help?
The tax law partners and your usual contacts at Arendt &
Medernach is at your disposal for the
Effects of the new measures on your tax affairs.
The content of this article is intended to provide a general overview
Guide to the subject. Expert advice should be obtained
about your particular circumstances.
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