Luxembourg draft 2021 budget law

On 14 October 2020, Luxembourg’s Finance Minister presented the measures in connection with the 2021 budget law to the Chamber of Deputies.

Due to the COVID-19 pandemic, it was announced that the main focus will be to contain the effects of the crisis; therefore, there will not be a general tax reform for the 2021 budget year. Instead, various corporate, individual and indirect tax changes and administrative simplifications will be addressed. The draft law would enter into force and be applicable on 1 January 2021, except for the applicability of some tax measures that may be determined otherwise.

The parliament will review, potentially modify, and vote on the draft budget law before the end of 2020.

1. Corporate tax measures

 The draft law proposes to introduce the following corporate tax measures:

  • Measures regarding the ownership of real estate located in Luxembourg by some Luxembourg investment vehicles;
  • Amendment to the fiscal unity regime to change from a vertical to a horizontal consolidation regime; and 
  • An adjustment of the accelerated amortizations.
2. Individual tax measures

The budget draft law proposes several changes regarding personal income tax with the intention of creating tax fairness while remaining competitive to attract and retain key talent. Subsequently, the draft law would introduce the following “personal” income tax measures:

  • Abolition of the current “stock option” regime, leading to a substantial change to currently prevailing remuneration models on the Luxembourg market;
  • Introduction of a “prime participative” for some employees, based on positive results (profits) generated by the employer;
  • Modernization of the current tax framework for "impatriates”;
  • Measures for rented-out real estate: adaptation of the accelerated depreciation rate for rented-out properties and introduction of a depreciation rate in case of “energy”-related renovations for buildings assigned for rental purposes;
  • Introduction of multi-year electronic withholding tax cards on wages and salaries, and
  • Other measures.
3. Indirect tax measures

The draft law proposes to introduce the following indirect tax measures:

  • Substantial increase of duties applicable to the contribution of a Luxembourg property to a company;
  • Attribution of a property to a partner of a company;
  • Reduction of the subscription tax rate for funds investing in sustainable investments;
  • VAT - Renovation work;
  • VAT - Small businesses;
  • CO2 tax; and
  • Tax on insurance premiums.

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Source: Deloitte Tax Alert




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