Post by Chambers on Dec 18, 2008 8:48:53 GMT 4
Luxembourg: Tax changes to be introduced in 2009 - Changes for companies
Following the announcement made by the government in May of this year which resulted in a draft law that abolishes the 0.5% capital duty as of 2009, a draft law was released on October 1 2008 that includes some additional tax changes for both companies and individuals. This new law would enter into force in 2009.
• 0% withholding tax on dividends to entities resident in a tax treaty country
The exemption of dividend withholding tax provided by article 147 income tax law (ITL) is extended to distributions made to fully taxable entities that are resident in a country with which Luxembourg has concluded a double tax treaty.
These non-resident entities have to be fully taxable entities, that is, subject to a corporate income tax that corresponds to the Luxembourg corporate income tax (CIT). Based on the commentaries to the draft law, a corporate income tax is similar to the Luxembourg CIT if it is mandatory (that is, not optional) and if the effective tax rate is at least half of the Luxembourg corporate income tax rate (that is, 10.5% as from 2009) and applied on a taxable basis that is determined following rules which are similar to the ones applicable in Luxembourg.
• Corporate income tax rate decreased by 1%
In May 2008, the government announced a decrease, in two steps, of the global corporate income tax rate (that is, CIT + municipal business tax, (MBT) from the rate of 29.63% to 25.5%. The draft law foresees, as a first step, a decrease of the corporate income tax rate from 22 to 21%, which would bring, as from 2009, the global corporate income tax rate from 29.63 to 28.59% (21% + 4% solidarity tax + 6.75% MBT).
• Exemption of certain IP rights for net Wealth Tax purposes
Following the introduction in 2008 of an 80% exemption of income generated on certain IP rights, as defined in article 50 bis ITL (that is, income received as a consideration for the use of any copyright on software, any patent, trade mark, design or model), and on capital gains realised on the sale of such IP rights, the draft law suggests to amend article 50 bis ITL such as to clarify that domain names are within the scope of the partial exemption.
In addition, the draft law introduces an exemption of these IP rights for net wealth tax purposes.
• Income tax legislation adapted following the requirements applicable to companies to prepare their accounts based on the International Financial Reporting Standards (IFRS)
The draft law adapts certain provisions of the ITL in order to neutralise potential negative tax implications that would result from adopting IFRS (instead of LuxGaap).
The amendments suggested in the draft law ensure that unrealised gains remain excluded from the taxable basis, independently of whether they are recognised or not from an accounting point of view. These changes deal mainly with financial instruments that according to IFRS must be accounted for at fair market value and thus may be accounted for a value higher than the historical cost.
In the same way, the draft law makes sure that enterprises can still take advantage of the exemption or roll over mechanisms available in the income tax law.
• Motor vehicle tax no longer tax deductible
Based on the draft law, the tax in relation with motor vehicles will no longer be deductible. The draft law lists however some exceptions to the non-deductibility, for example for companies active in the transportation industry.
• Tax credit for hiring unemployed workers
Based on the draft law, the measure introducing a tax credit for hiring unemployed workers, which was limited in time, is extended for three more years until December 31 2011 and the tax credit is raised from 10% to 15%.
Paul Chambers (paul.chambers@atoz.lu), & Samantha Nonnenkamp (samantha.nonnenkamp@atoz.lu), Luxembourg
Following the announcement made by the government in May of this year which resulted in a draft law that abolishes the 0.5% capital duty as of 2009, a draft law was released on October 1 2008 that includes some additional tax changes for both companies and individuals. This new law would enter into force in 2009.
• 0% withholding tax on dividends to entities resident in a tax treaty country
The exemption of dividend withholding tax provided by article 147 income tax law (ITL) is extended to distributions made to fully taxable entities that are resident in a country with which Luxembourg has concluded a double tax treaty.
These non-resident entities have to be fully taxable entities, that is, subject to a corporate income tax that corresponds to the Luxembourg corporate income tax (CIT). Based on the commentaries to the draft law, a corporate income tax is similar to the Luxembourg CIT if it is mandatory (that is, not optional) and if the effective tax rate is at least half of the Luxembourg corporate income tax rate (that is, 10.5% as from 2009) and applied on a taxable basis that is determined following rules which are similar to the ones applicable in Luxembourg.
• Corporate income tax rate decreased by 1%
In May 2008, the government announced a decrease, in two steps, of the global corporate income tax rate (that is, CIT + municipal business tax, (MBT) from the rate of 29.63% to 25.5%. The draft law foresees, as a first step, a decrease of the corporate income tax rate from 22 to 21%, which would bring, as from 2009, the global corporate income tax rate from 29.63 to 28.59% (21% + 4% solidarity tax + 6.75% MBT).
• Exemption of certain IP rights for net Wealth Tax purposes
Following the introduction in 2008 of an 80% exemption of income generated on certain IP rights, as defined in article 50 bis ITL (that is, income received as a consideration for the use of any copyright on software, any patent, trade mark, design or model), and on capital gains realised on the sale of such IP rights, the draft law suggests to amend article 50 bis ITL such as to clarify that domain names are within the scope of the partial exemption.
In addition, the draft law introduces an exemption of these IP rights for net wealth tax purposes.
• Income tax legislation adapted following the requirements applicable to companies to prepare their accounts based on the International Financial Reporting Standards (IFRS)
The draft law adapts certain provisions of the ITL in order to neutralise potential negative tax implications that would result from adopting IFRS (instead of LuxGaap).
The amendments suggested in the draft law ensure that unrealised gains remain excluded from the taxable basis, independently of whether they are recognised or not from an accounting point of view. These changes deal mainly with financial instruments that according to IFRS must be accounted for at fair market value and thus may be accounted for a value higher than the historical cost.
In the same way, the draft law makes sure that enterprises can still take advantage of the exemption or roll over mechanisms available in the income tax law.
• Motor vehicle tax no longer tax deductible
Based on the draft law, the tax in relation with motor vehicles will no longer be deductible. The draft law lists however some exceptions to the non-deductibility, for example for companies active in the transportation industry.
• Tax credit for hiring unemployed workers
Based on the draft law, the measure introducing a tax credit for hiring unemployed workers, which was limited in time, is extended for three more years until December 31 2011 and the tax credit is raised from 10% to 15%.
Paul Chambers (paul.chambers@atoz.lu), & Samantha Nonnenkamp (samantha.nonnenkamp@atoz.lu), Luxembourg