The main objectives of the Bill are to amend the minimum net wealth tax (‘NWT’) provisions further to the recent decision by the Luxembourg constitutional court (Decision No. 185/23 dated 10 November 2023), to provide a formal legal basis for the so-called ‘partial liquidation regime’ in accordance with constant administrative practice and recent case law, to introduce the option to renounce the participation exemption regime under certain conditions and to continue generalising electronic filings.
Annual minimum NWT substantially amended
With effect from 1 January 2025, if the Bill is approved, the minimum NWT will no longer depend on the composition of the taxpayer’s balance sheet. Instead, it will range between EUR 535 and EUR 4,815, irrespective of the proportion of financial assets held by the relevant taxpayer. In addition, the aim is to remove the last four brackets. This will be particularly beneficial for non-financial types of companies with a total balance sheet value exceeding EUR 2 million, as it will lead to a significant decrease of their annual minimum NWT.
Partial liquidation regime clarified
If the current version of the Bill passes, it will also clarify the tax treatment applicable to the repurchase and cancellation of shares (the so-called ‘partial liquidation treatment’). The goal is to ensure clarification through an amendment of article 101 of the Luxembourg income tax law (the ‘LITL’), resulting in greater legal certainty in cases of repurchase of an entire class of shares followed by cancellation of those shares. In terms of clarifications, the Bill aims in particular to require that such classes of shares be cancelled within a maximum period of six months, for there to be a differentiation in the economic rights attached to the different classes of shares issued by the company upon incorporation or a share capital increase (which was already largely recommended in practice due to specific case law and to be on the safe side) and for the repurchase price be determined in accordance with the articles of the company and corresponding to the fair market value (‘valeur estimée de réalisation’) of the relevant shares.
Renouncing the participation exemption
As from tax year 2025, the Bill and the Draft GDR aim to allow taxpayers to renounce the corporate tax exemption laid down in article 166 LITL and the related Grand Ducal Regulation (the so-called ‘Luxembourg participation exemption’) in cases where this results from a qualifying participation with an acquisition price exceeding EUR 1.2 million (for dividends and liquidation proceeds) or EUR 6 million (for capital gains) (i.e., as opposed to income deriving from a qualifying subsidiary representing 10% or more and for which renunciation is not possible). Opting out of the partial income tax exemption set out in article 115(15a) LITL (the so-called ‘half exemption’ for dividends) is also now allowed under the Bill.
Continue to generalise electronic filings
Finally, the government wishes to continue modernising processes such as electronic tax filings, for which it will request the filing of certain other tax forms in electronic form only, including in particular filings relating to withholding tax on directors’ fees, starting from 1 January 2025.
If you have any questions, please contact our Tax team.