Luxembourg presented its 2016 state budget draft law on 14 October. A number of proposals affecting multinationals and high net worth individuals were announced, including:
the abolition of the minimum corporate income tax and its replacement with a minimum net worth tax (NWT);
a revised NWT for companies from 1 January 2016, with a rate of 0.5% on total net assets up to €500m (which is unchanged from current rules), and a new rate of 0.05% on total net assets of €500m or more;
the modification of the income tax law provision dealing with part-year residents, so that all part-year Luxembourg tax residents can claim the full amount of available tax deductions rather than pro rata amounts; and
the repeal of Luxembourg’s current intellectual property (IP) regime from 1 July 2016, and from 1 January 2017 for NWT purposes.
Under Luxembourg’s current patent box regime, qualifying income and capital gains derived from certain types of intellectual property were 80% exempt from corporate income tax, resulting in an effective tax rate of around 5.8%; and qualifying IP rights were 100% exempt from NWT.
The abolition of Luxembourg’s patent box regime from July next year follows agreement on the ‘nexus approach’ for patent boxes at both the OECD and EU levels, especially with the release of the OECD’s recommendations on tackling BEPS. However, under BEPS Action 5, existing IP regimes may be maintained during a transition period beginning on 1 July 2016 and ending on 30 June 2021, subject to certain conditions.
Luxembourg presented its 2016 state budget draft law on 14 October. A number of proposals affecting multinationals and high net worth individuals were announced, including:
the abolition of the minimum corporate income tax and its replacement with a minimum net worth tax (NWT);
a revised NWT for companies from 1 January 2016, with a rate of 0.5% on total net assets up to €500m (which is unchanged from current rules), and a new rate of 0.05% on total net assets of €500m or more;
the modification of the income tax law provision dealing with part-year residents, so that all part-year Luxembourg tax residents can claim the full amount of available tax deductions rather than pro rata amounts; and
the repeal of Luxembourg’s current intellectual property (IP) regime from 1 July 2016, and from 1 January 2017 for NWT purposes.
Under Luxembourg’s current patent box regime, qualifying income and capital gains derived from certain types of intellectual property were 80% exempt from corporate income tax, resulting in an effective tax rate of around 5.8%; and qualifying IP rights were 100% exempt from NWT.
The abolition of Luxembourg’s patent box regime from July next year follows agreement on the ‘nexus approach’ for patent boxes at both the OECD and EU levels, especially with the release of the OECD’s recommendations on tackling BEPS. However, under BEPS Action 5, existing IP regimes may be maintained during a transition period beginning on 1 July 2016 and ending on 30 June 2021, subject to certain conditions.
