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The Luxembourg Government together with the Luxembourg Parliament filed budget bill no. 7878 last 12 October 2021, launching a new set of one-off tax measures and specific clean-up amendments for individuals. Budget 2022 reveals the approach that Luxembourg has ultimately chosen by taking the stability of its fiscal framework, without introducing new tax schemes nor greatly modifying its corporate income tax legislation amidst its every-changing international tax system.

The Primary Tax Measures in the budget bill no. 7878 include:

European Individual Pension Schemes (PEPP)

This is the introduction of tax provisions (Article 111ter of the Income Tax Law or ITL) and applies to European individual pension schemes. The new schemes will be integrated and fully aligned with domestic law no. 7774, describing the launch of EU regulation 2019/1238

These new schemes will be integrated into domestic law, perfectly aligning with bill no. 7774 with the implementation of EU regulation 2018. This new set of programs are similar to existing individual pensions schemes under Article 111bis/ITL, specifically tax treatment applicable to

I- Individual pension scheme payments, including deductibility terms

II – Pension scheme premium reimbursements, including partial exemption terms

Bear in mind that payments under the individual pension schemes and PEPPs will only be deductible to an annual cumulative ceiling of EUR 3,200.

Qualifying Home Saving Plans

Annual contributions paid towards qualifying home saving schemes are deductible within the pre-determined ceilings as prescribed in Article 111 ITL. This includes i.e. in relation to the purpose of which plans are put into place. Additionally, this is applicable where the total sums received at the contract date maturity will be used to financed solar photovoltaic or solar thermal systems.

Lump Sum Taxation of Temporary Workers

The launch of lump sum taxation for temporary workers set at 10% of their respective salaried income, subject to certain terms and conditions.

Brexit-Linked Tax Measures

The removal of UK-incorporated companies from all tax provisions concerning Member State companies (provision in relation to Luxembourg’s participation exemption regime). This will be considered within the context of restructuring. For inbound and outbound dividend payments, domestic exemptions in relation to UK companies are still valid and applicable.

Definition for ATAD-Related Measures (Interest Limitation Rules)

Introduction of the definition for “consolidated group for financial accounting purposes, such as a group in which all smaller entities are fully consolidated under unified financial statements prepared in adherence to International Financial Reporting Standards or an EU Member State’s national financing reporting standards (i.e., Luxembourg’s GAAP)

These brand-new measures will be implemented starting 2022 and are heavily influenced by existing post-pandemic conditions and extensive government evaluation. These tax measures are not impending signs of a major tax reform but demands greater focus on upholding a stable fiscal landscape in Luxembourg.

Budget 2022 Summary

As part of the government’s initiative to stop speculations on Luxembourg’s real estate assets, it also announced the introduction of a new bill in the next 12 months that will modify the country’s real estate tax legislation. The purpose of this upcoming bill is to address real estate speculations by increasing tax rates on undeveloped and unoccupied real estate properties. Luxembourg’s Budget 2022 will naturally follow conventional legislative processes through parliament.

Damalion is at your service to further analyse and consult your business on the anticipated effects of these newly introduced measures on your company’s tax affairs. To learn more about how we can help you, contact us today.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.