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Luxembourg Budget Law 2021 voted – tax rates pegged

17/12/20

In brief

On 17 December 2020, the Luxembourg Parliament voted to approve the 2021 Budget Law, and it will now become law. Its provisions include a number of measures that amend or extend the tax legislation. The draft text of the legislation (Bill n°7666) had been submitted to Parliament on 14 October 2020.

For the 2021 tax year, all corporate tax rates are to remain unchanged – the headline overall effective corporate tax rate thus remains 24.94%.

No new personal taxes, or any major reform of the personal tax regime for 2021, are now contemplated, and personal income tax rates will also remain unchanged. For individuals, the legislative measures target a range of topics. These include the introduction of a new tax efficient profit sharing scheme for employees, a widening of the definition of what is considered as employment income, and the modification and extension of the special tax regime for “inbound” employees. The Circular Letter providing for a lump sum valuation method for stock options and warrants has been withdrawn on 14 December 2020, with effect as from 1 January 2021.

Tax regimes for funds remain stable. Fund vehicles (Part I and II UCIs) investing in sustainable assets will begin to benefit from rates of subscription tax reduced from the standard 0.05% rate. One long-foreseen and sharply-focused anti-avoidance measure targets non-tax transparent Luxembourg fund vehicles investing directly in Luxembourg real estate, with both gross rental income and disposal gains arising as from 1 January 2021 being subject to a new real estate levy (“prélèvement immobilier”) applying at a 20% rate. Only a very small number of fund vehicles are expected to be affected, and the levy does not apply to any fully taxable corporate (i.e. non-transparent) entities owning Luxembourg real estate, even when owned by Luxembourg fund vehicles. Nor does the new levy apply to Luxembourg funds holding real estate assets sited outside Luxembourg.

In detail

Only very minor changes to the draft text as set out in Bill n°7666, as submitted to Parliament on 14 October 2020, have been made during the legislative process.

The detailed analysis set out in our previous PwC Flash newsletter, first posted on 15 October 2020, hence remains fully applicable.

See here 

In conclusion

The Government has recognised that, while the COVID-19 pandemic will weigh heavily on the State budget, it would not be desirable to reduce purchasing power by increasing taxes. Stability at this time is seen as essential, and so any major reform of the tax system, particularly of personal taxes, although already foreseen as part of the current Government’s programme, will not be undertaken for 2021.

Changes that are being implemented are thus mainly to try to tackle some very specific areas where unfairness in the existing regime is perceived to lie, and to enhance sustainability and environmental protection. Liabilities under the new Real Estate Levy, on Luxembourg real estate income and gains accruing directly to certain investment fund vehicles, will be of very limited and local application. 

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Contact us

Gerard Cops

Tax Services Leader, PwC Luxembourg

Tel: +352 49 48 48 2032

Alina Macovei

Tax Policy Leader, PwC Luxembourg

Tel: + 352 49 48 48 3122

Alexandre Jaumotte

Tax Partner, PwC Luxembourg

Tel: +352 49 48 48 5380

Thierry Braem

Partner, PwC Luxembourg

Tel: +352 49 48 48 5106

Julien Treffort

Partner, Personal tax department, PwC Luxembourg

Tel: +352 49 48 48 3349

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