The Luxembourg budget for 2023 (the “Budget”) has been adopted by the Luxembourg Parliament on 15 December 2022. While it contains no major tax reforms, there are various tax clarifications and reductions. These are as follows.

Clarification on reverse hybrid rules

The so-called “reverse hybrid rules” were implemented in Luxembourg domestic law under Article 168quater of the amended law dated 4 December 1967 on income tax (“LIR”) which provides that a Luxembourg tax transparent entity could become taxable in Luxembourg if the majority of its investors consider the Luxembourg entity as a taxable person in Luxembourg, i.e. tax opaque (the hybridity deriving from the difference of qualification). As a measure of clarification, the Budget foresees that this rule will apply where the non-taxation of income only derives from a difference of qualification between the involved jurisdictions (and not as a consequence of the subjective exemption of such investors).

Increased flexibility for global talents

  • Amendments to the “profit-sharing bonus: this regime has been introduced in 2021 and allows employees to benefit from a 50% exemption of the remuneration in the form of a profit-sharing premium (“prime participative”) up to 5% of the employers’ accounting profit of the year immediately preceding that for which the premium was granted. The purpose of the amendment is to grant, on an annual basis, the possibility of calculating the 5% threshold in relation to the positive algebraic sum of the results of the members of the integrated group (within the meaning of Article 164a LIR), provided that a tax consolidation existed during the year in which the participation premium is granted as well as during the year immediately preceding the year in which the premium is granted.
  • Amendments to the “highly-skilled and qualified employees” regime : the minimum remuneration threshold required to benefit from the impatriate regime is lowered from EUR 100,000 to EUR 75,000 in order to maintain Luxembourg international attractiveness in a context of increased difficulties in recruiting qualified employees in certain economic sectors.

Extension of the deadline for filing tax returns

To align the applicable law with the current administrative practice, the Budget extends the ultimate deadline for filing of personal income tax (natural persons), corporate income tax, municipal business tax and net wealth tax returns to 31 December of each year.