The most important tax-related changes for corporate taxpayers under the Budget Law ("Law") can be summarised as follows:
Extension of the investment tax credits to acquired software from unrelated parties and zero-emission cars
Luxembourg tax law provides for (i) a global investment tax credit, which amounts to 8% for the first tranche of EUR 150,000 and 2% for the tranche exceeding EUR 150,000 without exceeding 10% of the tax due for the fiscal year in which the operating year is ending during which the acquisition was made and (ii) an additional investment credit, which amounts to 13% of the acquisition price of the qualifying investment.
New zero-emission cars acquired after 31 December 2017 would benefit from both the global tax credit (but limited to an amount of EUR 50,000 of the acquisition price of the car per car) and the additional tax credit (without limitation) whereas software acquired from unrelated parties would benefit from the global tax credit.
Self-developed software will be covered by the new intellectual property box regime as of fiscal year 2018, as announced in the released Bill 7163 (for a more detailed analysis of the proposal see the article "New Luxembourg IP regime").
Clarification of the tax exemption of capital gains realised in the context of a merger
The aim of the amendment of Article 171 of the Luxembourg income tax law is to specify that the participation exemption applies on the capital gains realised by a resident company on the shares of a subsidiary that is absorbed in the context of a reorganisation even if the minimum holding period of 12 months is not met at the date of the reorganisation.
Extension of the VAT exemption for management of investment fund services
The Law extends the VAT exemption under Article 44 paragraph 1, d), i) of the VAT Law applicable to the management of investment fund services by including collective internal funds held by a life insurance undertaking whose investment risks are borne by the policyholders and which are subject to the supervision of the Luxembourg Insurance Authority (Commissariat aux assurances) or an equivalent supervision in another EU Member State.
Finally, it should be remembered that certain measures, which had already been adopted within the 2017 Luxembourg Tax Reform such as the reduction of the corporate tax rate from 19% to 18% will become effective as of 1 January 2018, leading to an effective combined income tax rate of 26.01 % for companies resident in Luxembourg city.
