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Luxembourg: Upcoming tax policy

In December 2013, the new Luxembourg government announced its political program for the upcoming years. The announcement contains several direct and indirect tax measures. The aim of the Luxembourg government is to keep Luxembourg attractive for international activities, multinational companies, investment funds as well as Small and Medium-sized Enterprises (SME's).

Luxembourg: Upcoming tax policy
In December 2013, the new Luxembourg government announced its political program for the upcoming years. The announcement contains several direct and indirect tax measures. The aim of the Luxembourg government is to keep Luxembourg attractive for international activities, multinational companies, investment funds as well as Small and Medium-sized Enterprises (SME's). The announcement contained several interesting measures.

Direct taxes

  • A notional interest deduction will be introduced in order to encourage equity financing of investments in Luxembourg
  • A tax-exempt reserve will be created for investing SME's
  • Tax incentives to attract multinational headquarters will be introduced (e.g. the introduction of transfer pricing regulations, modernisation of the Intellectual Property regime and of the participation exemption regime and the introduction of the use of functional currency)
  • The Advance Tax Agreements framework will be improved in order to achieve more certainty and more transparency for the taxpayer
  • The introduction of substance requirements to assure the material presence of companies in Luxembourg

Indirect taxes

  • The VAT rate will increase (expected new rate: 17%) but will remain the lowest regular VAT rate in the European Union

Regulated investment fund industry

  • No increase of the registration duties due by Specialised Investment Funds (SIF) is planned
  • No change in the tax regime regarding Regulated Venture Capital Funds (SICAR) is planned

From a legal and administrative point of view, the new Luxembourg government will continue to fight against tax fraud. Tax fraud will be targeted through reformed tax criminal law in particular. However, no indication has been given regarding the implementation of these reforms and regulations in terms of deadlines.

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