Luxembourg and New Tax Measures Planned
On 30 July 2010, the Luxembourg Minister for Finance proposed a draft law to the Luxembourg Parliament for the introduction as from 2011 of tax measures aimed at counter-balancing the effects of the economic and financial crises in Luxembourg (Projet de loi N° 6166).
The below-noted tax measures are non-exhaustive, be they applicable to individuals or companies, and – subject to enactment by Parliament – applicable as of 1 January 2011. The crisis contribution is intended to be a temporary tax measure limited to tax years 2011 and 2012.
This Flash International Executive Alert, excerpts, with permission “Luxembourg Tax News” (Issue 2010-11), a publication of the KPMG International member firm in Luxembourg. To access the publication, click here.
New Maximum Individual Tax Rate
A new tax bracket is introduced. The current maximum tax rate of 38 percent will be applicable to taxable income between €39,885 and €41,793. The new maximum individual tax rate of 39 percent will apply to taxable income exceeding €41,793.
Increase of Unemployment Surcharge (so-called Solidarity Tax)
The unemployment surcharge (solidarity tax) added to the income tax rates, will increase from the current 2.5 percent to 4 percent. For taxable income exceeding €150,000 in tax classes 1 and 1a or €300,000 in tax class 2, this rate will be increased to 6 percent.
Consequently, the marginal tax rate will increase from the current 38.95 percent to 40.56 percent (39 percent x 4 percent) and 41.34 percent (39 percent x 6 percent) respectively.
Reduction of Lump-Sum Deduction for Travel Expenses
The lump-sum deductions granted for travel expenses between the taxpayer’s home and his or her place of work (figure as “FD” on the individual’s tax card) will be cut by almost 50 percent.
The annual minimum deduction per km will be reduced from €99 to €51. The monthly minimum deduction will decrease from €33 to €17, the annual minimum from €396 to €204 and the annual maximum from €2,970 to €1,530.
Introduction of a Crisis Contribution
For The crisis contribution is a non-deductible tax which will be calculated and levied similarly to the dependency contribution. A ceiling will not apply, though a tax-free amount will be introduced that should correspond to the social minimum wage for non-qualified wage-earners in the case of employed individuals and to three-quarters (¾) of this income for most categories of self-employed individuals.
Increase in Maximum Deductible Alimony Paid to a Former Spouse
The maximum deductible amount for alimony paid by the divorced taxpayer to his/her former spouse will be increased from €23,400 to €24,000 per year.
Limitation of Tax Credit for Notarial Deeds
The tax credit for notarial deeds in relation to the acquisition of private real estate to be used as main place of residency, which amounts to maximum €20,000, will only be granted according to the taxpayer’s income. Further details will be fixed by a Grand-ducal decree.
Increase of Unemployment Surcharge
The draft bill further provides for a 1-point increase in the unemployment surcharge, thereby increasing the latter to 5 percent, applied on the corporate income tax. Accordingly, the 2011 global tax rate applicable to Luxembourg companies would increase from 28.59 percent to 28.80 percent (i.e., 22.05-percent corporate income tax [21 percent plus 5-percent unemployment surcharge thereon] and 6.75-percent municipal business tax applicable in the municipality of Luxembourg).
Limited Tax Deduction for Departure Indemnities
The portion of the departure indemnities or the dismissal indemnities granted to employees leaving their employer that exceed €300,000, will no longer be tax deductible at the level of the company.