1. Pillar 2
Groups which are in scope essentially need to take into consideration three points in action: first, financial statement disclosure of FY2024, to assess whether there is any additional tax to be paid; second, registration of companies and branches that are located in Luxembourg for Pillar 2 purposes; third, tax filing by mid-2026.
Even though China has signed up for the Pillar 2 project, it doesn't have these rules implemented in local jurisdiction yet. However, if there is one entity in the group located in a country which has implemented the rules, i.e. Luxembourg, then Pillar 2 is still relevant to Chinese operations. The existence of one in-scope entity is sufficient to trigger the application of the 15% effective tax rate across the group, which may result in bringing within scope of Chinese entities. Implementation aspects such as financial statement disclosures and compliance with local tax filing obligations should be managed at the Luxembourg level.
The Luxembourg Accounting Board2 (CNC) issued on 24 March 2025 the Q&A CNC 25/0353 for companies preparing their accounts under Lux GAAP. This new Q&A generally applies to financial years preceding the transition year, as well as to financial years beginning from this same transition year.
The Q&A CNC 25/035 further provides doctrinal clarifications on the information to be provided in the notes of standalone and consolidated accounts prepared under Lux GAAP and how to record the tax impact linked to Pillar 2.
Key take away: Luxembourg local compliance rules are to be respected with deadlines and to be implemented at the Luxembourg level. Immediate actions are relevant for 2024 financial statements.
Lux-China Business Unlocked
NEW - We're excited to launch our video series, "Lux-China Business Unlocked", with the first episode focusing on 'Pillar 2. This series aims to help Chinese businesses in Luxembourg staying informed with the local regulations. Tune in for key insights and practical tips!
2. TP updates
Tax/TP audits: The Luxembourg tax authorities (LTA) have significantly increased their TP audit activity over the last few years; Two types of TP audits conducted by the LTA: (i) Generic TP audit initiated by the tax inspector in charge of tax return, and (ii) In-depth Tax and TP audit initiated by Audit division (division révision).
LTA interaction with other parties:
Recent cases where CSSF requested TP documentation from banks;
ECB raised questions to Luxembourg banks’ auditors regarding the functional and substance footprint of the taxpayer;
Increased scrutiny of statutory auditors in terms of TP compliance and statutory audit assessments - existence of appropriate TP polices raised by CAA (Insurance);
CSSF checks consistency between TP models and actual business models (regulatory/licencing).
Key take away: CSSF and tax authorities have given significant focus on TP. It’s important to have proper documentations for tax authorities’ and CSSF’s examination.
3. New investment tax credit
Luxembourg companies can benefit from additional tax incentives for investments and expenses related to digital (and green) transformation. These incentives will come in the form of a tax credit of 18% of the qualifying investment amount and/or qualifying expenses.
Key take away: PwC Luxembourg has a leading market share for successful applications, in obtaining this new tax credit for our clients.
4. New impatriate tax regime
Impatriates are entitled to benefit from an income tax exemption of 50% of their total gross annual remuneration, capped at € 400,000 per year. This regime can apply for eight years and the year of arrival.
Key take away: With the application of the new tax regime, a tax saving of e.g. EUR 53,114 can be achieved for an employee under tax class 1 with annual gross earnings of EUR 250,000.
5. VAT group
VAT group allows taxable people to benefit from VAT savings. It is an option to Luxembourg taxpayers. It can significantly reduce VAT impacts for businesses with VAT exempt activities which receive services from other group companies. Given that banks in Luxembourg generally carry out VAT-exempt activities, the VAT group implementation in practice has achieved substantial benefits.
Key take away: VAT group implementation in practice has achieved cost savings for many banks in Luxembourg.
6. VAT treatment of director fees
On 22 November 2024, the Luxembourg tribunal released its long-awaited judgement on the VAT status of independent directors. The judges analysed several criteria concluding that the independent director in the case at stake was not acting independently for VAT purposes and therefore was not required to apply VAT to his services. The VAT authorities have facilitated a simplified reimbursement procedure for VAT covering the six-year period 2018 – 2023 on MyGuichet.lu. This procedure is accessible until 30 June 2025.
Key take away: Independent directors (if eligible) can apply a simplified VAT reimbursement, which also benefits the respective banks.
Contact us
Xiaoyan Huang
Director, China Business Leader, Tax Specialist, PwC Luxembourg
Tel: +352 62133 38 20
