On 17 December 2020, the Luxembourg Parliament (Chambre des Députés) approved the bills n°7666 and 7667 on the 2021 budget including certain tax measures (collectively, the “Law”)*. The main tax measures, applicable as from 1 January 2021 except if stated otherwise herein, are summarised below.
Main corporate tax measures
Corporate tax rate, corporate tax base
No changes have been made to the standard corporate tax, or to the general legal rules and regulations regarding the computation of the corporate tax base.
Luxembourg vehicles owning Luxembourg real estate
To fight certain structures considered abusive, a new tax on Luxembourg real estate income received by certain Luxembourg vehicles exempt from corporate income tax has been introduced. This tax amounts to 20% (the “20% Tax”) without any possibility of deduction and includes any rental proceeds and capital gains realised on Luxembourg real estate, whether received directly or indirectly via tax transparent vehicles.**
Amendment to the private wealth management company regime
To align the purpose of the new 20% tax applied to certain Luxembourg vehicles exempt from corporate income tax and owning real estate in Luxembourg, the Law has amended the regime of private wealth management companies falling within the meaning of the law of 11 May 2007, as amended, insofar the latter are prohibited from holding not only directly any real estate in Luxembourg, but henceforth also indirectly via tax transparent vehicles.**
Tax consolidation regime
Following the decision of the European Court of Justice of 14 May 2020 (C-749/18), the Luxembourg tax consolidation regime has been amended to allow a vertical tax consolidation group to shift to a new horizontal tax consolidation group without the need for the existing group to be dissolved beforehand. **
Main individual tax measures
Replacement of the employee participation scheme
The stock option regimes available in Luxembourg under the tax circular L.I.R. n°104/2 dated 29 November 2017 (the Circular n°104/2) has been replaced by a new employee participation scheme considered more reasonable and fairer.**
Amendments to the impatriate regime
The impatriate regime available in Luxembourg under the tax circular L.I.R. n° 95/2 dated 27 January 2014 (the “Circular n°95/2”) on the impatriate tax regime has been amended and codified to render the regime more attractive. **
Main green tax measures
Reduction of the subscription tax for UCIs investing in sustainable activities
To further promote the development of sustainable financing, the subscription tax for undertakings for collective investments (“UCIs” ) investing in “environmentally sustainable economic activities” as per the European Union’s taxonomy regulation has been gradually reduced.**
Introduction of an accelerated depreciation rate of 6% on renovation expenses
To promote a sustainable housing policy with a view to combat climate change, the Law has introduced an accelerated depreciation rate of 6% over a period of 10 years on expenses related to sustainable renovation of personal and rented accommodation.**
Other tax measures
Allowance on rental income from commercial leases
Given the current sanitary context, a tax allowance is granted to landlords for any waivers made on part or all of rents due, under commercial leases, for the calendar year 2020. Such waiver, which may be given to individual as well as corporate tenants, must however be given until 31 December 2020.**
Increase of the registration duties on Luxembourg real estate contributions
To partly align duties to be paid on the contribution of Luxembourg real estate with those related to the sale of Luxembourg real estate, taxes due on such contribution have been significantly increased. As of 1 January 2021, any contribution of Luxembourg real estate will trigger an ad valorem registration duty of 2.4% instead of 0.6% (due to the surcharge rate on registration duties applicable to real estate located in Luxembourg-City, such registration tax would be 3.6% instead of 0.9%) and a transcription tax of 1% instead of 0.5%.**
Reduction of the accelerated depreciation available for Luxembourg rental housing
The accelerated depreciation for rented Luxembourg real estate has been reduced from 6% to 4% and will henceforth be available only for real estate old less than 5 (instead of the prior 6) years as at 1 January of the tax year at hand. The same applies to renovation costs of an old building where they exceed 20% of the acquisition or cost price of that building and the renovation is completed within five years as from of the tax year at hand.**
Special property allowance
A special property allowance has been introduced for the benefit of taxpayers deriving Luxembourg net taxable income from a commercial, agricultural and forestry, liberal profession or rental activity and to whom an accelerated depreciation of 4% would be granted regarding a rented building (or part of it) acquired or finished after 31 December 2020 and which is older less than 5 years as at 1 January of the tax year at hand.
This special property allowance amounts to 1% of the sum of the depreciable basis of rented Luxembourg real estate, with a cap of 10,000 euros.
*The Law will only become effective once it has been published in the Luxembourg Official Journal
** All details on this measure is available here:
https://www.hoganlovells.com/en/blogs/luxembourg-blog/luxembourg---main-new-2021-tax-measures-at-a-glance