While certain measures have already been legislated on earlier this year, the 2024 Budget has been the opportunity for the government to recall its tax agenda and introduce excise taxes for certain previously untaxed products assimilated to tobacco.

Luxembourg 2024 tax agenda

·       Implementation of the 2023–2028 coalition program

A series of tax measures in favour of the Luxembourg real estate sector have already been issued in February 2024 and the investment tax credit have been extended to investments and expenses incurred for digital transformation as well as energy and ecological transition (). For individuals’ taxation, measures to reduce the tax burden of class 1a will be taken in 2024 and a proposal for a single taxation class should be issued in 2026. Regarding Corporate Income Tax, the coalition program included a decrease in the rate to reach OECD countries’ average. Finance Minister announced a potential 1% reduction of the CIT rate as from 2025.

·       Continuation of Pillar 2 implementation

The Luxembourg government remains involved in the Luxembourg implementation of Pillar 2 () in light of ongoing OECD work on the matter. Luxembourg already transposed the Pillar 2 Directive with the income inclusion rule and qualified domestic top up tax applicable as from 1 January 2024 and the undertaxed payment rule applicable as from 1 January 2025.

·       Involvement in EU and OECD tax initiatives

o   Unshell Directive proposal, ATAD III, pertaining to the minimum substance of certain EU companies ();

o   BEFIT Directive proposal aimed at harmonizing the tax base for large MNEs active in the EU and simplifying transfer pricing compliance for low-risk distributors and contract manufacturing ();

o   HOT Directive proposal aimed at simplifying the tax compliance burden for SMEs operating in the EU through permanent establishments ();

o   EU initiative “VAT in the Digital Age” aimed at modernising VAT reporting and introducing e-invoicing for cross-border transactions, addressing the challenges of the VAT treatment applicable to the platform economy, and avoiding multiple VAT registrations in the EU ();

o   EU actions on energy taxation;

o   OECD Pillar 1 pertaining to a tax base reallocation towards consumers countries for in-scope MNEs ().

Taxation of emerging products assimilated to tobacco

The Budget Law introduced taxation for new products assimilated to manufactured tobacco setting the maximum amount of excise duty at EUR 200 per litre for e-liquids, EUR 100 per kilogram for nicotine sachets and 41.50% of retail price for the ad valorem part and EUR 35 per kilogram for heating tobacco. These changes will apply as from 1 October 2024 for the first two categories to leave sufficient time to manufacturers to take appropriate compliance steps and 1 May 2024 for nicotine sachets.

Authors

, Partner in the Tax Department and , Senior Counsel in the Tax Department.