In line with the Centralis ‘client first’ approach, we aim to share valuable insights to our clients. Here we take an in-depth look at the new tax reforms that have been recently introduced by the Luxembourg Parliament, and the implications they may have for firms in 2025.
On 11 December 2024, Luxembourg’s Parliament adopted a series of tax reforms to strengthen the nation’s reputation as a competitive global financial hub. With some measures effective as of the tax year 2024, and others legally from 1st January 2025, these measures focus on streamlining compliance, reducing tax burdens, and aligning Luxembourg’s tax system with international standards.
Key Tax Changes: An Overview
One of the most significant updates is the Corporate Income Tax (CIT) rate reduction, which will decrease from 17% to 16% starting in 2025. This change reduces the overall tax rate for companies based in Luxembourg City to 23.87%, making Luxembourg more attractive for international businesses and investors.
The reforms also introduce a simplified Net Wealth Tax (NWT) system, which will now be based solely on a company’s total balance sheet. From January 2025, taxpayers will pay:
- EUR 535 if their balance sheet is under EUR 350,000,
- EUR 1,605 for balances between EUR 350,000 and EUR 2 million, and
- EUR 4,815 for those exceeding EUR 2 million.
This streamlined approach replaces the previous system, deemed unconstitutional due to its complexity and reliance on financial asset proportions.
For businesses, new flexibility under the participation exemption regime allows companies to waive exemptions on certain dividends and capital gains if specific thresholds are met. For example, the waiver is only available for participations where the acquisition cost of the shareholding exceeds EUR 1.2 million for dividends and EUR 6 million for capital gains. The waiver only applies to the entire participation (it cannot be applied selectively to only some shares), and for cases where the taxpayer owns more than 10% of the participation’s capital, the waiver option does not apply.
The waiver option has also been extended to Luxembourg’s 50% dividend exemption regime, and this change enables businesses to utilise accumulated tax losses more effectively while aligning with similar regimes in other jurisdictions.
Further digitalisation is on the horizon, with mandatory e-filings to include several additional tax returns, including but not limited to withholding tax returns for directors’ fees and employee salaries and pensions, beginning from the 1st January 2025. This is part of a broader push to modernise Luxembourg’s tax infrastructure.
Individual taxpayers will also benefit from measures such as adjusted income tax brackets, a simplified impatriate regime, a new young employee bonus, new overtime tax credits, and amendments to the profit-sharing bonus, demonstrating Luxembourg’s commitment to balancing business competitiveness with personal financial relief.
Implications For Businesses
These updates significantly enhance Luxembourg’s attractiveness as a business destination. Lower corporate taxes and simplified wealth tax rules reduce the financial burden on businesses and pave the way for increased profitability and growth. The flexibility in participation exemptions offers opportunities for tax optimisation, further boosting business prospects. However, these changes require firms to reassess their structures to ensure compliance, particularly in light of the mandatory e-filing requirements.
Introducing more transparent and straightforward tax rules will strengthen Luxembourg’s position as a global leader in corporate services and alternative investments. However, the evolving landscape demands vigilance and strategic planning to avoid risks associated with non-compliance.
How Centralis Can Help
It’s never been more important to stay ahead of the curve and be ready to adapt to the changing tax environment. At Centralis, we offer comprehensive tax and audit support, with services including tax preparation, filing, and reporting, subscription services, and regulatory compliance.
We understand the complexities of tax processes and our end-to-end management services are designed to minimise inconsistencies, deliver comprehensive reporting, and ensure accurate, compliant submissions, giving you the confidence to meet all your tax obligations with precision and timeliness.
Our team of multilingual professionals is adept at navigating Luxembourg’s regulatory framework. To find out more about the newly adopted tax measures and our tailored tax solutions, contact Sébastien François.