Vote of the law transposing the new Double Tax Treaty between Luxembourg and the United Kingdom (“UK”)
28/07/23
In brief
On 19 July 2023, the Luxembourg Parliament voted to approve the draft law n°8160 transposing the new Double Tax Treaty (“the new DTT”) between Luxembourg and the United Kingdom signed on 7 June 2022. The Luxembourg State Council confirmed no second hearing was required.
The entry into force is subject to the exchange of the ratification instruments. Assuming said exchange of ratification instruments happens before year-end, the new DTT should be effective on 1 January 2024.
In detail
The provisions of the new DTT, detailed in our previous PwC Flash newsletter posted on 9 June 2022, remain unchanged.
https://www.pwc.lu/en/newsletter/2022/new-dtt-signed-between-luxembourg-and-uk.html
Entry into force (article 30 of the DTT)
As the ratification process is already completed in the UK, the last step is the exchange of the ratification instruments. Assuming said step is performed before year-end, the treaty’s provisions will be effective as follows:
a) As far as the UK is concerned:
- for withholding taxes, to income derived on or after 1 January 2024;
- for income tax and capital gains tax, for any year of assessment beginning on or after 6 April 2024;
- for corporation tax, for any financial year beginning on or after 1 April 2024 (please note, this is not the financial year of a company, but the UK statutory definition of a financial year which is from from1 April to 31 March every year. Therefore, the changes to corporation tax including UK non-resident capital gains tax for Luxembourg resident companies will take effect for everyone from 1 April 2024)
b) As far as Luxembourg is concerned:
- for withholding taxes, to income derived on or after 1 January 2024;
- for other taxes on income, and taxes on capital, to taxes chargeable for any taxable year beginning on or after 1 January 2024.
Takeaway
The provisions of the new DTT must now be taken into account when structuring new investment opportunities, in particular structures implying investments in UK properties held through subsidiaries that may be affected by the introduction of the “land-rich” companies clause. The entry into force of the new favourable dividend withholding tax exemption provisions should also be considered going forward for any new investment opportunities or existing structures.
