Luxembourg – 2009 new important tax reforms

By Olivier Sciales of Chevalier & Sciales (Luxembourg law firm)

www.cs-avocats.lu
oliviersciales@cs-avocats.lu

On 16 December 2008, the Luxembourg Parliament has passed laws to enact the attractive measures
already proposed by the bills number 5924 and 5913.
The main measures introduced by these laws are as follows:
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.