I. Tax measures to boost Luxembourg businesses and the financial center

1. Decrease of the corporate income tax (CIT) rate

From tax year 2025, the CIT rate will be reduced from 17% to 16%. A Luxembourg-resident fully taxable company will thus be subject to a maximum aggregate tax rate (including CIT, municipal business tax and contribution to the employment fund) of 23.87% (in Luxembourg city in 2025) instead of 24.94% (in Luxembourg city in 2024).

2. Simplification of the minimum net wealth tax (MNWT)

With effect from the 2025 tax year, the calculation of the amount of MNWT will be simplified by only taking into account the taxpayer's total balance sheet (without considering the proportion of financial assets held by the taxpayer). As a result, MNWT would amount to the following:

• EUR 535 if the total balance sheet is less than or equal to EUR 350,000
• EUR 1,605 if the total balance sheet is greater than EUR 350,000 and less than or equal to EUR 2 million
• EUR 4,815 if the total balance sheet is greater than EUR 2 million

3. Technical clarifications for the repurchase and cancellation of a class of shares

The cumulative conditions under which a repurchase and a cancellation of a class of shares qualifies as a partial liquidation assimilated to capital gains without Luxembourg withholding tax (subject to the application of the abuse of law principle) are now enshrined in the Luxembourg tax law:

• Classes of shares must be established at the time of the incorporation of the entity or upon a capital increase.
• Each class of shares must have different economic rights defined in the entity's articles of association.
• An entire class of shares must be repurchased and cancelled.
• The corresponding reduction of the share capital must be performed within a short period of time that cannot exceed six months from the date of the repurchase.
• The repurchase price of a class of shares must be determinable based on criteria laid down in the entity's articles of association, or in any other document referred to in those articles of association, making it possible to reflect the estimated realizable value of the class of shares at the time of the repurchase.

4. Possibility to opt-out for the Luxembourg participation exemption regimes on dividends, liquidation proceeds and capital gains as well as the 50% tax exemption on dividends

With effect from the 2025 tax year, a Luxembourg taxpayer may waive the benefit of the Luxembourg participation exemption regimes on dividends, liquidation proceeds and capital gains, as well as the 50% tax exemption on dividend income when receiving income from a qualifying shareholding or realizing a gain from the disposal of a qualifying shareholding. This option is available only when the Luxembourg participation exemption regime would have applied by virtue of the acquisition price criterion (i.e., EUR 1.2 million for dividends and liquidation proceeds and EUR 6 million for capital gains), meaning that this possibility to opt out cannot be exercised when the taxpayer would have benefited from the Luxembourg participation exemption regime solely by virtue of the application of the 10% holding threshold criterion. The waiver must be exercised for each tax year and for each shareholding. Otherwise, the Luxembourg participation exemption regimes, respectively the 50% tax exemption on dividends, will automatically apply (subject to all conditions being met).

5. Amendment of the interest limitation rules

With effect from financial years beginning on or after 1 January 2024, a taxpayer that is not part of a consolidated group for financial accounting purposes and that is not to be considered a stand-alone entity is allowed, as a "single-entity group", to deduct, upon request, all of its net borrowing costs, provided that it can demonstrate that the ratio of its equity to its total assets is equal to or greater than the equivalent ratio of the single-entity group.

6. Exemption from subscription tax for actively managed Luxembourg ETFs qualifying as UCITS

As a lever for diversifying the financial center and developing new activities, actively managed Luxembourg exchange-traded funds (ETFs) qualifying as undertakings for collective investment in transferable securities (UCITS) will be exempt from subscription tax, with effect from the first day of the quarter following the publication of the law in the Luxembourg Official Gazette.

7. Several changes for private wealth management companies (SPF)

With effect from the first day of the quarter following publication of the law in the Luxembourg Official Gazette, the amount of the minimum annual subscription tax will increase from EUR 100 to EUR 1,000, and the corporate name of a company governed by the amended Luxembourg law of 11 May 2007 must always be accompanied by the words "société de gestion de patrimoine familial" or "SPF."

The applicable control procedures have been clarified and administrative fines up to EUR 250,000 may apply in the event of specifically identified legal breaches.

The SPF tax status may be withdrawn in the event of a noncompliance with the applicable legal, regulatory or statutory provisions, representing a certain seriousness and persisting breach for a specific period following a compliance injunction issued by the director of the Luxembourg Registration Duties, Estates and VAT Authority.

II. Tax measures to attract and retain employees

1. Modernization of the tax regime for inpatriates

To attract talent and highly specialized profiles as well as to offer companies a simpler tool, the current regime (which is based on a partial tax exemption of an impatriation bonus and on a tax exemption of certain expenses incurred by the inpatriate) will be replaced from the 2025 tax year by a new one that exempts 50% of the gross annual remuneration (before incorporation of benefits in-kind and exempt cash benefits), capped at EUR 400,000.

By way of example, where an inpatriate employee receives a gross annual remuneration, before incorporation of benefits in-kind and exempt cash benefits, amounting to EUR 500,000, the 50% tax exemption would apply up to a gross amount of EUR 400,000 of total annual remuneration, and as a result, a gross amount of EUR 200,000 would be exempt, and a gross amount of EUR 300,000 would be fully taxable in the hands of the inpatriate employee.

2. Enhancement of the profit-sharing bonus (prime participative)

To make the profit-sharing bonus scheme more attractive without changing the way it works, two ceilings will be increased from the 2025 tax year, detailed as follows:

• The maximum amount of the profit-sharing bonus eligible for tax exemption will be increased from 25% to 30% of the gross amount of the employee's annual remuneration (before incorporation of benefits in cash and in-kind).
• The amount that a company may allocate to the distribution of tax-exempt profit-sharing bonuses will be increased from 5% to 7.5% of the profit for the year immediately preceding the year in respect of which the profit-sharing bonus is allocated to employees.

3. Introduction of a "young employee bonus" (prime jeune salarié)

To help young people start their working life, with effect from the 2025 tax year, an employer may decide to grant to young employees a new "young employee bonus" (ranging from EUR 2,500 to EUR 5,000, depending on the young employee's gross annual remuneration before the incorporation of benefits in cash and in-kind), benefiting from a 75% tax exemption.

To qualify for this incentive, the employee must be under 30 years of age at the start of the tax year in which he/she obtains payment of the young employee bonus, should be in his/her first open-ended contract in Luxembourg, and should not receive a gross annual remuneration exceeding EUR 100,000.

4. Introduction of an overtime tax credit for cross-border workers

With effect from the 2024 tax year, an overtime tax credit for cross-border workers is introduced to provide some compensation, considering the loss of income suffered by private-sector employees who are as follows:

• Tax resident in a state with which Luxembourg has concluded a tax treaty and who receive gross remuneration from overtime actually worked in Luxembourg, for which the right to tax is attributed to Luxembourg and which is fully tax-exempt in Luxembourg.
• Subject to tax on that gross remuneration in their state of residence.

The amount of the overtime tax credit varies according to the gross remuneration received by the eligible employee for overtime worked in Luxembourg and amounts to a maximum of EUR 700 per year per eligible employee.

For further information on what these developments mean for you or your organization, you can register now for our Winter Tax Update 2025 held on 23 January 2025.