Legislative Proposal 8414

Dear Clients,

The government’s draft bill 8414 from 17th July 2024 includes a range of changes that will impact various aspects of tax and financial legislation in Luxembourg. Below are the key changes summarized:

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

Changes for Individuals:

• The amounts for the tax-advantaged participation bonus will be increased. In the future, a bonus of 30% instead of 25% of the annual gross salary will be tax-advantaged; the maximum bonus that can be paid as a participation bonus will increase from 5% to 7.5% of the previous year’s profit.
• The so-called Impatriate Regime will be adjusted: Starting in 2025, 50% of the gross salary up to a maximum of 400,000 euros will be tax-free.
• A “Prime jeune salarié” (Young Employee Bonus) for employees under 30 years of age will be introduced. This bonus is 75% tax-exempt; depending on the gross annual salary, the maximum payable tax-advantaged bonuses are:
  Prämie / Jahresvergütung
  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 by 2.5 index points in 2025 to account for inflation.
• 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 EUR per month starting in 2025, so employees who earn the minimum wage for unqualified workers and are in tax class 1 will no longer be subject to taxation.
• A new tax credit for overtime will be introduced to relieve employees whose overtime is taxed in their country of residence. The tax credit will be a maximum of 700 EUR per year and is based on the paid overtime. For overtime payments exceeding 4,000 EUR per year, a 700 EUR per year tax credit will be granted; for overtime payments between 1,200 EUR and 4,000 EUR, the tax credit will be 25% of the amount exceeding 1,200 EUR. No tax credit will be granted for overtime payments below 1,200 EUR. The tax credit will be retroactively applied for the 2024 assessment year.

Changes for Companies:

• The corporate tax rate will be reduced by 1% starting in 2025; i.e., the maximum tax rate will decrease from 17% to 16%. The entry tax rate for incomes below 175,000 EUR will therefore decrease from 15% to 14%.
• Change in the regulation regarding the deductibility of interest expenses: Technical adjustments to clarify the deductibility of interest expenses for certain groups of companies (so-called “interest barrier”).
• The annual minimum tax of the taxe d’abonnement for SPFs will be increased from 100 euros to 1,000 euros. The increase in the minimum tax is expected to take effect in the quarter following the promulgation of the law.
• Stricter control and sanction mechanisms: Introduction of administrative fines for violations of legal requirements and clarification of the procedures for revoking the SPF status.

Changes for investment funds:

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

This summary consists of simplified information.

Should you have any questions regarding the mentioned changes or need assistance in assessing your tax matters, we are happy to assist you.