Luxembourg minimum net wealth tax judged unconstitutional
On 10 November 2023, the Luxembourg Constitutional Court ruled that the minimum net wealth tax applicable to certain Luxembourg holding companies was unconstitutional in view of the principle of equality before the law.
As currently provided by Luxembourg law the minimum net wealth tax is levied annually either:
- according to the size of the balance sheet of the Luxembourg company and in such case ranges from €535 (for companies with a balance sheet equal or below €350,000) to €32,100 (for companies with a balance sheet above €30,000,000); or
- at a flat rate of €4,815 if the financial assets, transferable securities, cash and receivables owned by affiliated companies exceed 90 per cent of the balance sheet (the 90 per cent threshold) and €350,000.
Further to these rules, a Luxembourg holding company which fulfils the condition for the flat rate to apply (90 per cent threshold and €350,000) would be subject to a €4,815 minimum net wealth tax whereas if it had not meet the 90 per cent threshold would have been subject to €1,605 minimum net wealth tax with a balance sheet below ranging from €350,000 to €2,000,000.
A Luxembourg company in this situation referred the case to the Lower Administrative Tribunal as it did not consider it fair to have to pay a higher minimum net wealth tax only on the basis that it met the 90 per cent threshold.
In April 2023, the Lower Administrative Tribunal referred the question, if it was constitutional to treat taxpayers differently based on the composition of their balance sheet, to the Constitutional Court. It is worth mentioning that before the Lower Administrative Tribunal the government was not able to justify this difference of treatment.
The Constitutional Court judged unconstitutional this provision and ruled that while waiting amendment to the law taxpayers with a balance sheet meeting the 90 per cent threshold and balance sheet ranging from €350,000 to €2,000,000 should be subject to the progressive minimum net wealth tax (€1,605) as it is more favourable than the flat minimum net wealth tax (€4,815).
Nevertheless, companies meeting the 90 per cent threshold with a balance sheet above €2,000,000 would remain subject to the flat €4,815 minimum net wealth tax as it remains more advantageous than the progressive minimum net wealth tax scale.