To fight certain structures considered as abusive (certain investors reinvested indefinitely untaxed income from immovable properties), a new 20% tax (the “20% Tax”) on rental income realised directly (or indirectly via tax transparent vehicles) on Luxembourg real estate (“RE”) is henceforth applicable to tax opaque vehicles subject to the Part II of the 2010 UCI regime, the 2017 SIF regime or the 2016 RAIF regime not having opted to be taxed in accordance with article 48 of such law. The 20% Tax will thus not apply to partnerships or contractual funds. Whilst the scope of this new tax is rather limited, the reporting obligations are broad as all Luxembourg vehicles concerned by the 20% Tax must provide a special report by 31 May 2022 and any breach may involve a fixed fine of €10,000.
Based on a similar rationale as the one behind the 20% Tax, the 2007 SPF regime has been narrowed by prohibiting a SPF from holding also indirectly any RE (via tax transparent vehicles).
To further promote the development of sustainable financing, the subscription tax for UCIs investing in “environmentally sustainable economic activities” as per the EU’s taxonomy regulation is gradually reduced, amounting e.g. to 0.01% (instead of 0.05%) if at least 50% of the net assets constitute qualified sustainable investments.
Finally, a temporary measure has been introduced to allow for a vertical tax consolidation group to shift to a horizontal tax consolidation group without any negative tax consequences for the consolidated group members, even if the minimum period of five fiscal years foreseen under the tax consolidation regime would not be met.
Following the recent abolishment of the specific Luxembourg stock option regimes, a new employee participation scheme, considered more reasonable and fairer, has been introduced where certain employees affiliated with the Luxembourg social security scheme may receive a profit-related bonus with a 50% tax exemption whilst being tax deductible by the employer, subject to conditions (e.g. limitation to 5% of the employer’s profits and 25% of that of the employee’s annual income).
An amended and codified impatriate regime has been introduced, whereby employers may pay impatriate employees a tax-deductible bonus exempt at 50%, which can however not exceed 30% of the impatriate’s gross annual remuneration that needs in addition to amount to at least €100,000. Further, certain costs incurred by the impatriate during their relocation to Luxembourg and paid by the employer would be tax deductible at the level of the employer and tax exempt in Luxembourg at the level of the impatriate, provided that they are reasonable and above the costs that the impatriate would have occurred in their State of origin. Within those costs, the repetitive costs would only be tax exempt up to a limit of €50,000 (respectively €80,000 for a couple) or 30% of the total of the latter’s fixed remuneration.
To benefit from such regime, the impatriate employee must fulfil certain conditions, i.e. not having been tax domiciled nor subject to income tax in Luxembourg on professional income for at least the 5 tax years preceding the entry into service, and not living within 150km of Luxembourg’s borders. The benefit of these exemptions is limited to a period of 8 tax years, consecutive to the year of the entry into Luxembourg of the eligible impatriate.
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