Legislative Proposal 8414

Dear clients,
The government’s bill 8414 of 17.07.2024 contains a large number of changes that affect various aspects of tax and financial legislation in Luxembourg. The most important changes are summarized here:

We will inform you as soon as the legislative initiative has been passed by Parliament

Changes for private individuals:

• The amounts for the tax-privileged participation premium will be increased. In future, a premium of 30% instead of 25% of the annual gross salary will be taxprivileged; the maximum premium payable as a participation premium will increase from 5% to 7.5% of the previous year’s profit.
• The so-called impatriate regime will be adjusted: From 2025, 50% of gross salary up to a maximum of 400,000 euros will be tax-free.
• A partial tax exemption for premiums paid to young employees under the age of 30 is to be introduced. This premium is up to 75% tax-exempt; the maximum tax-privileged premiums payable depend on the gross annual salary:
  Premium / Annual remuneration
  5,000 EUR / <= 50,000 EUR
  3,750 EUR / 50,001 – 75,000 EUR
  2,500 EUR / 75,001 – 100,000 EUR
• The income tax rate will be adjusted to inflation by adding 2.5 index brackets in 2025.
• The tax rate for tax class 1a will be significantly reduced starting in 2025. Additionally, there will be tax relief, especially for single parents – for example, the CIM tax credit will increase from 2,505 EUR to 3,504 EUR starting in 2025.
• The tax credit for the social minimum wage will be increased from 70 to 81 Euros per month from 2025, so that employees who earn the minimum wage for unskilled workers and are in tax class 1 will no longer be subject to taxation.
• A new tax credit for overtime is being introduced to relieve the burden on employees whose overtime is taxed in their country of residence. The tax credit amounts to a maximum of EUR 700 per year and is based on the amount of overtime paid. From EUR 4,000 p.a. in overtime pay, a tax credit of EUR 700 p.a. is granted; between EUR 1,200 and EUR 4,000, the tax credit amounts to 25% of the value exceeding EUR 1,200; below EUR 1,200, no tax credit is granted. The tax credit is to be introduced retroactively for the 2024 assessment year.

Changes for Companies:

• The corporate tax rate will be reduced by 1% from 2025, i.e. the maximum tax rate will fall from 17% to 16%. The initial tax rate for income below EUR 175,000 will therefore fall from 15% to 14%.
• Amendment to the regulation on the deductibility of interest expenses: Technical adjustments to clarify the deductibility of interest expenses for certain groups of companies (so-called “interest barrier”)
• The minimum annual amount of subscription tax for SPFs will be increased from EUR 100 to EUR 1,000. The increase in the minimum tax is to take effect in the quarter following the promulgation of the law.
• Tightening of control and sanction mechanisms: introduction of administrative penalties for violations of the legal requirements and clarification of the procedures for withdrawing SPF status.

Changes for investment funds:

• Introduction of a tax exemption for certain actively managed UCITS ETFs in order to strengthen the competitiveness of the Luxembourg fund sector.

This summary consists of simplified information.

Should you have any questions about the changes mentioned or require assistance in assessing your tax situation, we will be happy to help.