LUXEMBOURG
LUXEMBOURG VAT LAW DEVELOPMENTS
On 13 March 2009, the Luxembourg Government agreed on a draft law to transpose, into the Luxembourg VAT legislation, the newly adopted EU VAT legislation (the so-called “VAT package”). From 1 January 2010, the reverse charge rule will be extended to become the main rule for the supply of cross-border services.
In the framework of business-to-business relationships, the recipient of services supplied cross-border will be liable to tax except in the case of certain types of services, such as restaurant and catering services, hiring of transport, cultural, sporting, scientific and educational services for which taxation is still at the place of consumption or for services connected with immovable property, at the place where it is located.
For business-to-consumer services, the place of taxation will continue to be, in principle, where the supplier is established. In addition, EU Sales Lists for intra-EU supplies of services will be introduced. These will be filed on monthly basis (by the 15th of each month for electronic filing).
Luxembourg VAT law includes the reverse charge rule. The reverse charge rule applies to most supplies of services where the supplier is not a resident and does not have a permanent establishment in Luxembourg. The invoice must refer to the local tax law provision under which the tax liability is transferred to the recipient.
UK RESIDENTS SUBJECT TO SAVINGS WITHHOLDING TAX AS FROM 2010
The Luxembourg tax authorities issued a circular on 12 October 2009 stating that as from 1 January 2010 UK resident non-domiciled persons will be considered as within the scope of the EU Savings Directive in respect of income on Luxembourg based savings. Up to that time they had been excluded. This means that savings withholding tax of (currently) 20% will need to be applied on interest paid or attributed to such persons unless they opt for the exchange of information and/or the tax certificate procedure.
Additionally, even if savings withholding tax is applied as from 2010, a credit or deduction of such withholding must always be available in the state of residence.
LUXEMBOURG ABOLISHES THE OBLIGATION TO PROVIDE A CERTIFIED COPY OF AN ORIGINAL DOCUMENT
Due to the economic and financial crisis the Luxembourg Parliament has recently taken several measures in order to simplify the administrative procedures.
One of them concerns a Law of 29 May 2009, which abolishes the obligation to provide a certified copy of an original document. According to this new bill, a certified copy of an original document delivered by a Luxembourg administrative authority or an administrative authority from another Member State of the European Union to be submitted in an administrative procedure of the State, commune or any other legal person, can no longer be requested.
In case of any doubt about the validity of the copy which has been produced, the authorities may request the presentation of the original, provided such a request indicates the reason.
The presentation of a certified copy of an original document will still be requested in case of documents issued by authorities of a country which does not belong to the European Union.
The Law came into force on 8 June 2009.
DEMISE OF THE 1929 HOLDING COMPANY
The classic Luxembourg 1929 Holding Company, so called because it was incorporated under the law of 1929, ended on 31 December 2010. The regime was held to be an illegal state aid by the European Commission, and Luxembourg concurred by abolishing the regime in 2006. No new Luxembourg Holding Companies were allowed to be formed, but existing ones were allowed to remain in existence under the “grandfathering” rule, provided there was neither a change of economic beneficiary nor of the objects of the Company.
A Luxembourg Holding Company, unless converted to another form of Luxembourg Company or migrated out of Luxembourg before the end of 2010, was automatically converted to a SOPARFI (Société de Participations Financières). This is a Luxembourg holding company which, in principle, is fully taxable but with good tax planning can end up paying little tax or even none.
Losses incurred by a Luxembourg Holding Company before its conversion to a SOPARFI may not be carried forward into the SOPARFI, which starts its corporate taxable life with a zero taxable profit or loss situation.
EU SAVINGS DIRECTIVE
Luxembourg banks and other Luxembourg Financial Service Providers are required to withhold tax at a rate of 20% from interest paid on the accounts of EU residents (other than Luxembourg residents), unless the account holder has elected to send the following information to the tax authorities of the country in which they are resident: information about the period; the amount of interest paid; and the account holder’s identity.
This rate was 15% from 1 January 2005 to 30 June 2008 and increased to 35% from 1 January 2011
Although Luxembourg participates in various OECD programs, it is not involved in an international tax enforcement program.
LUXEMBOURG TAX CHANGES FOR 2011
Certain tax amendments have been made with effect from 1 January 2011 to raise more money to combat the effects of the financial crisis. The most significant changes are:
Personal Income Tax Changes
Increase in Unemployment Surcharge: This charge which is added to the income tax calculated on individuals was increased to 4%. This rate was also increased to 6% for income exceeding €150,000 (€300,000 for couples taxed jointly).
Additional Tax Band: Another marginal income tax band was added of 39% for taxable incomes exceeding €41,793 or €83,586 for couples taxed jointly.
Introduction of a Temporary Crisis Tax: For the years 2011 and 2012 an additional tax of 0.8% on every category of income; including salaries in excess of the social minimum wage was introduced. The calculation of this tax is similar to the dependence insurance of 1%.
Increase in Deduction for Alimony paid to a Divorced Spouse: Maximum deductible amount of alimony paid to a divorced spouse has been raised from €23,400 to €24,000.
Corporate Tax Changes
Minimum Taxation on Passive Income Companies: A minimum flat income tax of €1,500 has been introduced for companies that do not require a business license or the approval of a supervisory authority. The companies targeted are those whose financial assets, transferable securities, and cash at bank amount to more than 90% of their balance sheet.
Increase in the Unemployment Fund Contribution: This is an amount added to the corporate income tax calculated and has been increased from 4% to 5%. The corporate income tax and municipal business tax rate remain unchanged so that the global tax rate has increased from 28.59% to 28.80%.
Increase in Investment Tax Credits: The tax credit on additional investment has been raised from 12% to 13%. This relief is available for investments in specific depreciable tangible assets except buildings, livestock and deposits (fossil or mineral) and ships flying the Luxembourg maritime flag. The tax credit on new investments made in Luxembourg has been increased to 6% of the acquisition price for investments higher than €150,000 and 7% above that amount
Limit on the Deduction of Redundancy Payments to Employees: Indemnities for the termination of an employment contract are only deductible by the employer up to a maximum of €300,000.
Should you have any questions as to how these changes will affect you please do not hesitate to contact us.