On July 17, 2024, the Luxembourg Minister of Finance submitted Bill of Law #8414 to the Luxembourg Parliament. The Bill proposes a series of tax measures aiming to make Luxembourg a more attractive place to work, do business, and attract and retain talent.
Corporate Income Tax (CIT) Reduction
The Bill proposes a reduction of the maximum CIT rate from 17% to 16%. For smaller companies, the reduction is from 15% to 14%. Consequently, the overall combined corporation tax burden for a company in Luxembourg City would be lowered from 24.94% to 23.87%, aligning it with the OECD average. The expected effective date is January 1, 2025.
ETF UCITS
Another significant measure is the exemption from the subscription tax for actively managed ETF UCITS. This change is expected to take effect on the first day of the quarter following the publication of the law.
Complete Overhaul of the Tax Regime for Highly Skilled and Qualified Impatriate Workers
The current regime that only allows tax breaks for certain incurred expenses related to an employee’s relocation to Luxembourg will be eliminated. Instead, a new regime will introduce a 50% tax exemption up to EUR400,000 of the gross annual compensation for impatriate employees. This benefit would be available for eight years, with eligibility conditions remaining unchanged. The expected effective date is January 1, 2025.
Profit-Participating Bonus (Prime Participative)
The profit-participating bonus regime becomes more attractive under the Bill. The overall envelope that an employer can allocate to employees would increase from 5% to 7.5% of their business profits of the preceding year. Additionally, the exempt part of the bonus granted to employees would increase from 25% to 30% of their gross annual compensation. The expected effective date is January 1, 2025.
A New Young Employee Bonus
The Bill introduces a new 75% tax exemption on bonuses awarded to young employees under 30 years old, earning less than EUR100,000 gross annual compensation. The exemption applies to capped bonuses and is available for five years, provided the employee remains with the same employer. The expected effective date is January 1, 2025.
Personal Income Tax Reductions
The Bill also includes several personal income tax reductions:
- Adjustment of the tax scale for inflation with an increase of 2.5 index brackets.
- Raising the tax-exempt income threshold from EUR12,438 to EUR13,230.
- Raising the threshold for the top tax rate of 42% from EUR220,788 to EUR234,870.
- Tax reduction for taxpayers in tax class 1a – widowed or over 64 years old.
- Increase of the single-parent tax credit from EUR2,505 to EUR3,504.
- Increase of the allowance for a child not part of the household from EUR4,422 to EUR5,424.
- Introduction of an overtime tax credit with a cap of EUR700/year for cross-border employees.
The expected effective date for most changes is January 1, 2025, with some retroactive to January 1, 2024.
Family Wealth Management Company (SPF or Société de gestion de Patrimoine Familial)
The Bill proposes modernizing the procedural framework by introducing administrative fines for certain breaches and increasing the minimum annual subscription tax amount from EUR100 to EUR1,000. These changes are expected to take effect on the first day of the quarter following the publication of the law.
This Bill may be further amended and will only come into force upon parliamentary approval and official publication.
