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Luxembourg Budget Law voted – a reduction in corporate tax rate and a refreshed tax unity regime

13 May 2019

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On 25 April 2019, the Luxembourg Parliament approved the Luxembourg Budget Law 2019.

Key updates

  • Corporate income tax rate reduced from 18% to 17%, applied for the 2019 tax year
  • The Luxembourg tax unity regime legislation rewritten , permitting the application of the ATAD 1 interest limitation rules and clarifying and consolidating existing measures, applicable to accounting periods starting on or after 1 January 2019

Corporate income tax

Corporate income tax (CIT) rate decreased by 1%, applicable for tax year 2019. There are no changes to the solidarity surtax rate levied on the CIT rate nor to the municipal business tax rates. This change results in an overall corporate tax rate of 24.94% for companies registered in the municipality of Luxembourg City.

In addition, a reduced CIT rate of 15% for companies with a tax base of less than EUR 25,000 is now applicable to companies with a tax base less that EUR 175,000. For a tax base between EUR 175,000 and EUR 200,001, the CIT charge will be EUR 26,250 plus 31% of the basis above EUR 175,000.

Refreshed tax unity

Taking effect from tax years beginning on or after 1 January 2019, the Luxembourg income tax law governing Luxembourg tax unity has been fully rewritten, allowing for the implementation of the option offered by ATAD 1 for the application of the new 30% EBITDA interest limitation rules at the level of a tax unity, including a provision to allow excess borrowing costs deductibility up to the higher of 30% EBITDA or EUR 3 million.

The interest limitation rule application at the tax unity level is optional. It can be applied on an individual basis and the request must be made by all tax unity members. It can then not be changes during the period of the tax unity.

For existing unities, the option of interest deduction limitation application to each company individually can be applied should all companies in the group submit a consolidated joint request before the end of the first financial year where the interest expense deduction limitation rules apply in Luxembourg.

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