17-12-08
Parliament sees reason and adopts two important laws introducing positive changes for companies as from 2009
by: ATOZ
Yesterday, the Parliament has adopted 2 laws that abolish the Luxembourg capital duty and introduce some tax changes both for companies and individuals. As it is expected that the State Council will not require a second voting, these laws should apply as from January 1st, 2009.
What has changed compared to the initial drafts?
In our newsletters of October 3rd, 2008 and September 12th, 2008 , we reported about some of the changes to be introduced for companies as from 2009.
Compared to the initial drafts we described, the laws entail the following changes applicable to companies:
Adaptations of tax legislation to IFRS
The provisions aiming at adapting the tax legislation in order to take into account the balance sheet of companies using International Financial Reporting Standards (“IFRS”) have been removed. This followed the financial crisis, which itself was followed by amendment to IFRS by the International Accounting Standard Board. In order to make sure that the IFRS tax measures to be introduced are adapted to all financial situations, the Government has preferred to review and amend, where necessary, the measures initially drafted and will issue a new draft law in Spring 2009.
Tax deductibility of motor vehicle tax
Based on the initial draft law, the tax in relation with motor vehicles was no longer tax deductible at the level of companies. Following the comments of the State Council, the provisions have been removed.
Registration duty applicable to contributions of real estate assets situated in Luxembourg:
While draft law 5913 abolishes the capital duty as from 2009, it reintroduces some registration duties that were no longer applicable as they were covered by the capital duty. In particular, real estate transfer tax (amounting to 10% in Luxembourg) was not due on the contribution of Luxembourg real estate as the real estate transfer tax was replaced by the capital duty. As the capital duty is to be abolished, real estate transfer tax becomes an issue again.
The initial draft law provided that contributions of a Luxembourg real estate remunerated by shares would be subject to a 1,2% registration duty + a 0,5% transcription tax. Following some comments made by the Chamber of Commerce, the Finance and Budget Commission of the Parliament decided to reduce the registration duty from 1,2% to 0,6% so that the global tax to be paid on such transactions is reduced from 1,7% to 1,1%.
Fixed registration duty
Based on the initial draft law, a fixed registration duty of either EURO 50 or EURO 100, depending on the legal form of the company, was to be introduced in order to cover several transactions involving Luxembourg companies: incorporation, transfer of seat from a foreign country to Luxembourg and amendment of the bylaws.
Following the comments made by the State Council, the amount of the duty is now set at 75 EURO for all company types.
The new measures in brief
Below, we provide a brief description of the new measures, as they have been passed by the Parliament today, following the amendments described above:
· Capital duty and other registration taxes
The 0,5% capital duty is abolished as from January 1st, 2009.
The same applies to the fixed capital duty applicable to UCIs within the meaning of the law of December 20, 2002 that also relates to SIFs, SICARs, ASSEPs, SEPCAVs and securitization vehicles.
The commentaries to the law specifically mention that the 5 year claw-back period does no longer apply in 2009 to transactions based on article 4-2, even if the said transactions took place before January 1st, 2009.
Indeed, article 4-2 deals with the so-called share for share merger exemption. Based on this article, a company that received a contribution in kind of shares in another EU company, against the issuance of new shares in its own capital, would be exempt from capital duty under certain conditions. One of the conditions is to hold the shares received for at least 5 years. Otherwise the capital duty becomes due. Based on the commentaries to the draft law, as from 2009, it will no longer be required for companies that have benefited from this capital duty exemption in the past, to keep the shares after January 1st, 2009
A fixed registration duty of EURO 75 is introduced and covers several transactions pertaining to Luxembourg companies: incorporation, transfer of seat from a foreign country to Luxembourg and amendment of the bylaws;
Contributions of real estate assets situated in Luxembourg will be subject to the following regime:
- Contributions remunerated by shares will be subject to a 0,6% registration duty + a 0,5% transcription tax;
- Contributions remunerated by other means than shares will be subject to a 6% registration duty + a 1% transcription tax (4% for Luxembourg town);
- Transfers made in the context of a corporate restructuring (i.e. contributions of all assets and liabilities, contributions of one or more branches of activities as well as contributions of all assets and liabilities of the 100% held subsidiary) are exempt from proportional duties. The transfers have however to be mainly remunerated (i.e. with more than 50%) with securities that represent share capital of the companies involved.
· 0% withholding tax on dividends to entities resident in a tax treaty country
The exemption of dividend withholding tax, as provided by article 147 income tax law (ITL), is extended to distributions made to fully taxable entities that are resident in a country with which Luxembourg has concluded a double tax treaty.
These non-resident entities have to be fully taxable entities, i.e. subject to a corporate income tax similar to the Luxembourg corporate income tax (CIT). Based on the commentaries to the draft law, a corporate income tax is similar to the Luxembourg CIT if it is mandatory (i.e. not optional) and if the effective tax rate is at least half of the Luxembourg corporate income tax rate (i.e. 10.5% as from 2009) and applied on a taxable basis that is determined following rules which are similar to the ones applicable in Luxembourg.
· Corporate income tax rate decreased by one percent
In May 2008, the government announced a decrease, in two steps, of the global corporate income tax rate (i.e. CIT + municipal business tax, (MBT) from the rate of 29.63% to 25.5%. The law foresees, as a first step, a decrease of the corporate income tax rate from 22 to 21%, which will bring, as from 2009, the global corporate income tax rate from 29.63 to 28.59% (21% + 4% solidarity tax + 6.75% MBT).
· Exemption of certain IP rights for net Wealth Tax purposes
Following the introduction in 2008 of an 80% exemption of income generated on certain IP rights, (i.e. income received as a consideration for the use of any copyright on software, any patent, trade mark, design or model), and on capital gains realised on the sale of such IP rights, the law suggests to amend article 50 bis ITL such as to clarify that domain names are within the scope of the partial exemption.
In addition, the law introduces an exemption of these IP rights for net wealth tax purposes.
Regarding the IP exemption regime more generally, the EU Code of Conduct Group which was reviewing the measure from a Code of Conduct point of view together with other measures introduced recently in other EU Member States, came to the conclusion that the Luxembourg IP measure does not need to be assessed against the Code of Conduct criteria. This should encourage investors to make use of this measure and the tax authorities to restart the process of drafting a circular describing in more details how this measure is to be applied in practice.
· Tax credit for hiring unemployed workers
Based on the law, the measure introducing a tax credit for hiring unemployed workers, which was limited in time, is extended for three more years until December 31 2011 and the tax credit is raised from its current rate of 10% to 15%.
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