On 14 December 2017, the 2018 budget law was approved by the Luxembourg Parliament. The main tax- related measures, applying from 1 January 2018, are summarised below.
– extension of the investment tax credit to (i) zero emission cars and (ii) acquired software (provided that this software has not been acquired from any associated entity);
– clarification of the tax treatment of capital gains within a merger;
– The reduction of the corporate tax rate from 19% to 18%, which had been adopted under the 2017
Luxembourg Tax Reform, became effective on 1 January 2018. As a result, the effective combined income tax rate for companies resident in Luxembourg City will be 26.01% for 2018.
Measures applicable to individual taxpayers:
– married resident taxpayers can either opt for joint taxation or for individual taxation of their income. The request for individual taxation must be submitted to the tax authorities by both spouses at the latest by 31 March of the year following the tax year concerned (e.g. by 31 March 2019 for the 2018 tax year);
– extension of the inheritance tax exemption for spouses/partners without common descendants. (Under the previous regime, the inheritance tax exemption was only available to married couples with common descendants);
– a tax rebate of €2,500 for “sustainable mobility” has been introduced for the acquisition of a with rechargeable hybrid electric car for individual use with emissions not exceeding 50 grams of CO2 per kilometre;
– The conditions under which married non-resident taxpayers can benefit from tax class 2 (the class for married taxpayers) have been simplified.
Value Added Tax (“VAT”) measures:
– Increase of the VAT rate applicable to forestry products from 4% to 12%