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Let's see at a glance the main new 2018 tax measures, applicable as from 1 January of this year and how they make Luxembourg more attractive.
New corporate tax measures
Whilst the corporate tax base remains unchanged, the corporate income tax rate is reduced to 18% with thus an aggregate corporate income tax rate of 26.01%, including the municipal business tax and the unemployment fund contribution, for companies located in Luxembourg-City.
In the area of IT, the acquisition of software may benefit, under certain conditions and subject to certain limitations, of a new tax credit, which will amount to 8% up to EUR 150,000 of its purchase price, and 2% above such a threshold. So here, two interesting measures for FinTech corporates.
The tax provision in relation to mergers has been amended to clarify that any gain realized by the acquiring entity under a merger is tax exempt if the conditions of the Luxembourg participation exemption regime are met, regardless however of the minimum holding period requirement. This is a welcome clarification that will ease the restructuring of international corporate groups.
The green economy is also not forgotten, indeed the acquisition of certain cars with zero emission will benefit, under certain conditions, from the global investment tax credit of 8% up to EUR 50,000 per eligible vehicle, and from the complementary investment tax credit of 13% without limitation. Further, the sustainable mobility measures have been extended, under certain conditions and limitations, to rechargeable electrical hybrid vehicles for private use that do not exceed the limit of 50g of CO2 per kilometer.
New individual tax measures
Married couples resident in Luxembourg now have the choice between joint taxation, strict separate taxation and separate taxation with free reallocation. This new flexibility will give married couples the possibility to opt for the most advantageous taxation method in view of their personal situation.
The assimilation of non-resident taxpayers to resident taxpayers has been facilitated by means of a new assimilation criterion (i.e., foreign income must not exceed the threshold of EUR 13,000) as well as the extension of the current 90% threshold.
The inheritance tax exemption has been extended and made available for couples without common descendants, provided that they are married or live together under a registered partnership for at least three years.
Other new tax measures
Capital gains derived from the sale of certain Luxembourg real estate (including gains on the sale of land) will continue to be taxed until 31 December 2018 at one-fourth of the overall tax rate. This is in line with the government's continuous efforts to ease the access to the Luxembourg real estate market.
Further, a new VAT exemption has been implemented for management activities of collective internal funds in life insurance whose financial risks are borne by the subscribers and that are subject to the supervision of the Luxembourg Insurance Commission.
The proposed amendment of the Luxembourg law on the request procedure for the exchange of information (further to the decision of the European Court of Justice in the Berlioz case dated 16 May 2017 - click here to read our blog on the decision) hasn't been adopted via the 2018 budget law as initially anticipated, but will be dealt with in a separate law.