Luxembourg introduces comprehensive tax reforms for 2025
Here’s a concise overview of the key points:
Corporate tax reforms
- Corporate income tax (CIT) reduction: Starting from 2025, the CIT rate will decrease by 1 per cent. Therefore, the companies with taxable profits below €175,000 will see a reduction from 15 per cent to 14 per cent, and those with profits exceeding €200,000 will see a decrease from 17 per cent to 16 per cent. This aligns Luxembourg’s CIT near to the OECD and EU averages.
Exchange-Traded Funds (ETF) and Private Wealth Management Companies (SPF) adjustments
- ETF tax exemption: The Draft Law extends the existing subscription tax exemption for passively managed ETFs to include actively managed ETFs.
- SPF - Several changes include:
- The corporate designation must contain “société de gestion de patrimoine familial” or “SPF”.
- The minimum annual subscription tax increases from €100 to €1,000.
- Compliance certificates must be filed electronically.
Restrictive measures for non-compliance with SPF regulations
New fines and procedural clarifications will be imposed for breaches of SPF regulations, with fines ranging up to €250,000 and additional penalties for continued non-compliance.
Individual tax measures
- Inpatriate regime overhaul: From financial year 2025, the current exemptions will be replaced with a 50 per cent exemption on gross annual salaries up to €400,000 for highly skilled foreign workers.
- Youth employment bonus: below certain threshold, a new 75 per cent exemption on bonuses for employees under 30 entering their first permanent job will be introduced, applicable for five years.
- Enhanced profit-sharing bonuses: The participative bonus regime will now allow bonuses to represent up to 30 per cent of an employee’s annual gross salary and 7.5 per cent of the previous year's profit.
- Tax credit for cross-border workers: Up to €700 tax credit will be introduced for overtime remuneration of cross-border workers subject to double taxation.
- Inflation adjustment: The tax scale will be adjusted to inflation.
Support for lower-income taxpayers
Starting in fiscal year 2025, targeted measures to ease the tax burden for lower-income taxpayers include revising the tax scale for Class 1a, which covers single-parent households, widowed persons, and those over 64, increasing the tax-exempt tranche to €26,460. The single-parent tax credit will rise to €3,504 annually, the allowance for children living outside the household will increase to €5,424, and the minimum social wage tax credit will be raised to €81 monthly, ensuring non-qualified minimum wage earners are not taxed regardless of their tax class.
The draft law No. 8414 (in French) can be accessed here.