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Luxembourg - 2009 Tax Reform introduced by the Law of 16 December 2008

December 2008 - Tax & Private Client. Legal Developments by Chevalier & Sciales .

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On 16 December 2008, the Luxembourg Parliament has passed laws to enact the attractive measures already proposed by the bills number 5924 and 5913. These new measures which will be applicable as of 1 January 2009 aim at facilitating investments in and through Luxembourg. The main measures are: (i) the abolition of capital duty as of 2009, (ii) the exemption of withholding tax (under certain conditions) on dividends paid to treaty countries (in case of corporate shareholders), (iii) decrease of the combined corporate income tax to 28,59% as of 1 January 2009 and (iv) broadening the scope of the IP regime introduced by the law of December 2007.

1. Abolition of capital duty as of 2009

The law has abolished the current contribution duty of 0,5% on capital contributions to Luxembourg companies.

The new favourable regime will provide:

- For  a fixed registration duty of 75 Euro on (i) the incorporation of Luxembourg companies, (ii) the amendment of the articles of incorporation of Luxembourg companies and (iii) the transfer of seats to Luxembourg;

- For contributions of real estate assets to Luxembourg companies in exchange of shares: these contributions will be subject to a fixed registration duty of 0,5% and a transcription tax of 0,5%. All other contributions of real estate assets to Luxembourg companies (such as debt takeover, etc.) will be subject to a registration duty of 6% and a transcription duty of 1%.

It is important to note that the new laws also provide for the abolition of the fixed capital duty of 1,250 Euro charged to specialized investment funds (SIFs), private equity capital companies (SICARs), undertakings of collective investments (UCIs) and securitization vehicles.

2. Exemption (under certain conditions) of withholding tax on dividends paid to treaty countries (in case of corporate shareholders)

This expansion of the participation exemption regime would seriously enhance the attractiveness of Luxembourg as a jurisdiction for the repatriation of profits. Currently, most treaties signed by Luxembourg provide for a reduced rate of withholding tax (generally 5% instead of the domestic withholding tax of 15%). Practically, this would reduce the withholding tax on dividends paid by a Luxembourg company to its parent company located in a country with which Luxembourg has signed a double tax treaty to 0%. The exemption is granted if the parent companies is subject to an effective tax rate of at least 10,5% and either hold at least 10% of the shares in the Luxembourg company or if the acquisition cost for the shares is at least 1,200,000 Euro. Given that Luxembourg has a very favourable holding regime and an extensive tax treaty network, as well as being a member state of the European Union, Non EU investors and Asian investors may see Luxembourg  as a platform for their European investments.

3. Decrease of the combined corporate income tax rate from 29,63% to 28,59% as of 1 January 2009

4. Broadening the scope of the IP regime introduced by the law of December 2007 (in relation to the 80% exemption on income derived from IP)

Currently, 80% of income and capital gains derived from intellectual property rights is exempt from corporate income tax. These laws would broaden the scope of the law as follows: (i) Qualifiying IP assets held by Luxembourg companies will be exempt from the net wealth tax of 0.5% and (ii) domain names are, as from tax year 2008, eligible to the 80% tax exemption on income derived from intellectual property.

For further information, please contact Olivier Sciales at oliviersciales@cs-avocats.lu or visit our website at www.cs-avocats.lu

 

 

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