Corporate related measures

The corporate income tax rate has been reduced from 17% to 16% with effect from 1 January 2025. This lowers the aggregate tax rate for companies established in Luxembourg-City to 23.87%.

The minimum net wealth tax was previously set at EUR 4,815, for companies where the aggregate of their fixed financial assets, transferable securities and cash exceeded 90% of their total gross assets and had a value of at least EUR 350,000. A company not falling within these criteria was subject to a minimum net wealth tax charge ranging from EUR 535 to EUR 32,100 depending on its total gross assets.

This regime was ruled partially unconstitutional by the Constitutional Court of Luxembourg (decision no. 00185 of 10 November 2023) on the grounds that there was no rational basis for a distinction between taxpayers.

Consequently, as from 1 January 2025, the fixed minimum net wealth tax has been replaced by a progressive scale ranging from EUR 535 to EUR 4,815 based on the value of the company’s total balance sheet, irrespective of the proportion of financial assets held.

In addition, the existing exemption from subscription tax has been extended to actively managed exchange traded funds (ETFs) that qualify as undertakings for collective investment in transferable securities (UCITS).

Amendment of the interest deduction limitation rule

A technical amendment to the Luxembourg interest deduction limitation rule has been implemented with effect from 2025, introducing the concept of a single-entity group (groupe à entité unique). This allows a qualifying entity to benefit, upon request, from a full deduction of its exceeding borrowing costs to the extent the ratio between its equity and its total assets is equal to or greater than the equivalent ratio of the single-entity group.

Formalisation of the classes of shares buyback tax treatment   

Luxembourg income tax law now formally enshrines a former administrative practice by providing that the repurchase (and subsequent cancellation of) an entire class of shares by a company qualifies as a partial liquidation and is therefore not subject to (profit distribution) withholding tax. In order to qualify as a partial liquidation, the following conditions must all be met:  

1. the classes of shares must have been established during the company’s incorporation or during a share capital increase;

2. the redeemed class of shares must be cancelled entirely within six months of its purchase;

3. each class of shares must have distinct economic rights based on the relevant articles of association (or any document referred to therein); and

4. the repurchase price must reflect the fair market value of the shares and be determinable based on the relevant articles of association (or any document referred to therein).  

Changes to the private wealth management company regime

With effect from 1 January 2025, the minimum annual subscription tax for private wealth management companies (SPFs) will increase from EUR 100 to EUR 1,000. There is also a new requirement for the corporate name of a company governed by the law covering the SPF regime (the law of 11 May 2007, as amended) to include the words “société de gestion de patrimoine familial” or “SPF.”

The audit procedures have been clarified, and administrative fines of up to EUR 250,000 may be imposed for specified legal breaches.

A company’s SPF tax status may be revoked if it fails to comply with relevant legal, regulatory, or statutory provisions, particularly if the breach is serious and has persisted following a compliance injunction issued by the Director of the Luxembourg Registration Duties, Estates, and VAT Authority.

Employment tax measures

Under the previous “inpatriate regime”, a highly qualified worker who is hired by (or posted to) a company located in Luxembourg could, under certain circumstances and for a limited period of time, receive a full or partial tax exemption for expenses in kind or in cash related directly to the move to Luxembourg. This regime is replaced, as from 2025, by a flat-rate tax exemption regime (that should be more straightforward for the relevant employer to manage) under which inpatriates may benefit from an exemption equivalent to up to 50% of their annual gross remuneration (up to a EUR 400,000 remuneration).

The profit-sharing bonus (prime participative) introduced on 1 January 2021 following the withdrawal of administrative guidance on the stock-options tax regime, which grants a conditional 50% tax exemption for employees on bonuses, has been revamped to make it more attractive and more straightforward to apply. Although the profit-sharing bonus continues to be subject to restrictive conditions linked to the profits realised by the distributing company, the associated thresholds have been increased as from 2025. As a result, the yearly profit allowed to be shared by the employer is 7.5% (previously 5%) and the payment which an employee can receive is 30% of their gross remuneration (previously 25%).

A new bonus regime for young employees (defined as employees under 30) has also been introduced with effect as from 1 January 2025. This allows young employees to benefit from a 75% tax exemption on their bonus for a period of up to 5 years, provided that the employee receives remuneration of less than EUR 100,000 and is employed under their first permanent contract in Luxembourg.

In addition to the measures outlined above, there are also several changes in relation to individual taxation that take effect in 2025, such as the adjustment of income tax brackets and the implementation of overtime tax credits for cross-border workers.

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