Luxembourg Parliament enacts corporate income tax reduction and other changes affecting corporate taxpayers

In brief

• On 11 December 2024, the Luxembourg Parliament approved two legislative proposals¹  that will affect corporate taxpayers. 
• Although some formal legal steps still need to be taken before the proposals become law, these steps are expected to occur before year-end.

Executive summary

On 11 December 2024, the Luxembourg Parliament adopted legislation amending, among other things, the Corporate Income Tax (CIT) Law and the Net Wealth Tax (NWT) Law.

Amendments affecting CIT

The CIT rate is reduced by 1%, resulting in a decrease in the global tax rate for a company operating in Luxembourg City with taxable income exceeding €200,000; thus, for tax year 2025, the current 24.94% rate will decrease to 23.87%.

Furthermore, the new legislation introduces a technical amendment to the interest limitation rules, aimed at clarifying their application for entities that are not part of a consolidated group for financial accounting purposes, while not being considered standalone entities (single company groups). For financial years beginning on or after 1 January 2024, a company may, upon request, deduct the total amount of its exceeding borrowing costs if it can demonstrate that the ratio between its equity and its assets is equal to or exceeds the equivalent ratio of the single company group. When determining the ratio of the group, debt owed to associated enterprises (as defined) will be included in the equity. 

To help address potential practical questions that may arise, the legislation introduces some technical clarifications, inspired by administrative court rulings, regarding partial liquidations of a collective entity. 

The law also introduces, as from tax year 2025, the possibility to waive the application of the tax exemptions for dividend income and capital gains foreseen by the Luxembourg Income Tax Law, under certain conditions.

Finally, the tax credit for hiring unemployed persons is extended until 31 December 2026. Subject to certain conditions being met, this tax credit is available to companies that hire job seekers and amounts to 10 % of the gross monthly remuneration of the hired individuals. The tax credit is deducted from the CIT due for the financial year in which the remuneration is paid. Any unused portion of the tax credit can be carried forward for up to 10 years.

New minimum NWT regime

Following a judgment of the Luxembourg Constitutional Court, the existing minimum NWT regime is being amended. As from tax year 2025, the minimum NWT applicable to all Luxembourg-resident companies will range from €535 to €4,815, depending on the companies’ balance sheet total.

Other measures

The procedural framework for private asset management companies (société de gestion de patrimoine familial or SPF) is modernized, with these provisions generally taking effect from the first day of the trimester following the publication of the law in the Official Gazette. Furthermore, Exchange Traded Undertakings for Collective Investment in Transferable Securities will benefit from a subscription tax exemption moving forward, if certain conditions are met. 

Finally, the digitalization process is extended, as mandatory electronic filing of certain tax returns now begins 1 January 2025.

Next steps

The final laws are expected to be published in the Official Gazette before year-end, with entry into effect of the various provisions as detailed above. 

Taxpayers potentially affected by the new legislation should consult with their tax advisors to fully understand how the change in law could affect them.