New 2011 tax law changes in Luxembourg confirmed

Luxembourg’s government has confirmed the details of key changes to its tax laws for 2011 which directly concern both individuals and companies.

The key changes are the introduction of a ‘crisis contribution’, a new top rate of marginal income tax, and an increase in the country’s solidarity tax.

According to the administration, the majority of the grand ducal laws and regulations, which entered into force on January 1 are linked to the economic and financial crisis. Launched within a difficult economic context, the new fiscal measures are designed to consolidate the country’s public finances.

The crisis contribution of 0.8% in 2011 is to be levied on all income, not just wages, but also on income from rent, dividends and on other types of income, subject to a deduction corresponding to the minimum social wage.

A new top rate of marginal income tax of 39% is introduced in addition to the existing top rate of tax of 38%. The new rate will be applied to income of €41,793 and over for class 1 income, and to income of €83,586 and over for class 2 income. Tax classes in Luxembourg apply in respect of family and residential status.

The solidarity tax paid by individuals (contribution to the employment fund) rises from 2.5% to 4%. For taxable income in excess of €150,000 for class 1 and 1a, and €300,000 for class 2, the rate of the contribution to the employment fund increases to 6%.

The contribution to the employment fund for corporations increases from 4% to 5%. And in a bid to encourage companies to realize investments in the interest of protecting the environment and of making energy savings, the fiscal measures pertaining to depreciation have been improved. The maximum rate of special depreciation applied to investment acquisitions has risen from 60% to 80%.

Designed to increase the competitiveness of companies, the tax credit rate for global investment as well as the tax credit accorded for additional investments have risen by 1%.

It means that the government has therefore increased the tax credit rate for supplementary investment from 12% to 13%. The rate for global investment has been increased from 6% to 7% for the first part of the investment not exceeding €150,000 and from 2% to 3% for the portion of the investment exceeding €150,000.

Also a ceiling will be imposed on the tax deductibility of severance pay in order to limit the impact of excessive severance pay on the employer’s taxable base. Therefore, severance pay or golden handshakes granted to employees and in excess of €300,000 will no longer be tax deductible.