On 11 October 2017, and for the last time before next year's parliamentary elections, the Luxembourg Finance Minister presented the budget bill for 2018 ("Bill") N° 7200 to Parliament (Chambre des Députés).

The main tax-related provisions of the Bill are laid out below in detail and include inter alia:

  • changes to the tax treatment of capital gains in the case of business restructurings;
  • improvements to the investment tax credit system;
  • extension of the VAT exemption to the management of collective internal funds held by a life-insurance undertaking;
  • introduction of 3 assessment options for resident spouses/partners;
  • extension of the inheritance tax exemption for spouses/partners without common descendants;
  • and amendment of the law on the exchange of information upon request in tax matters further to the decision of  the Court of  Justice of the European Union ("CJEU") in the Berlioz case (C-682/15).

In addition the Finance Minister reiteratered that the Luxembourg government is working with the international community for a fair and appropriate taxation of internet-based innovative business models. In this respect Luxembourg pushes for an harmonised approach and a global level playing field.

In the same context, the Luxembourg government expressed again its opposition against the current EU proposal for a financial transaction tax.

The Bill does not include the expected substantial modification of the  investment tax credit system, in particular as regards start-ups, research and investment intensive enterprises. Even though the Bill includes some improvements for investments in software and zero emission cars, a more substantial revision to the investment tax credit was expected to accompany the new IP Box regime presented earlier in August by the Bill of Law N° 7163 ("IP Bill"). For a more detailed analysis of the IP Bill, please refer to section (b) below.

Finally, the Finance Minister announced that the government will most likely amend the taxation of warrants and stock options  and submit capital gains thereon to the half global rate (i.e. max. 21%).

a.  Main tax-related provisions of the Bill

Business taxation

  • Clarification on the tax treatment of capital gains realised by a resident company on the shares of a subsidiary that is absorbed within a merger: in case the conditions of the participation exemption are not met with respect to such shareholding, the capital gains realised by the absorbing company on the shares of the absorbed subsidiary are nevertheless exempt if the absorbing company owns at least 10% of the shares of the absorbed subsidiary. This regime applies to mergers, divisions and other types of restructurings.

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