Luxembourg's 2025 Tax Reforms: Boosting Business and Individual Benefits

Luxembourg's Parliament has approved significant tax reforms set to take effect in fiscal year 2025, aimed at supporting businesses and individuals while providing important clarifications. These measures, voted on December 11, 2024, introduce several key changes to the tax landscape.

Business-Focused Reforms

The corporate landscape sees several beneficial changes:

1. Simplified Net Wealth Tax (NWT): A new progressive scale replaces the fixed EUR 4,815 amount, ranging from EUR 535 to EUR 4,815 based on total balance sheet.

2. Codified Shares Buyback: The tax treatment of share buybacks is now formally enshrined, with specific conditions for partial liquidations without withholding tax.

3. Participation Exemption Opt-Out: An opt-out mechanism is introduced for investments qualifying solely on acquisition price thresholds.

4. Reduced Corporate Income Tax: The rate decreases from 17% to 16%, lowering the aggregate rate in Luxembourg City from 24.94% to 23.87%.

5. Interest Deduction Limitation: New rules allow single entity groups to deduct exceeding borrowing costs under certain equity-to-asset ratio conditions.

Individual and Employee Benefits

Employees and individuals also see favorable changes:

1. Simplified Inpatriate Tax Regime: A 50% exemption on gross annual remuneration, capped at EUR 400,000, replaces the existing system.

2. Enhanced Profit-Sharing Scheme: Thresholds increase, with employers able to share up to 7.5% of yearly profits, and employees receiving up to 30% of gross remuneration.

3. New Young Employee Bonus: Employees under 30 in their first open-ended contract can benefit from a 75% tax exemption on bonuses up to EUR 5,000.

4. Personal Income Tax Adjustments: Revised tax brackets and a new tax credit for cross-border workers' overtime are introduced.

These reforms demonstrate Luxembourg's commitment to maintaining its competitive edge in the global market while supporting its workforce and attracting talent. The changes aim to simplify certain tax processes, encourage business growth, and provide additional benefits to employees, particularly younger workers entering the job market.

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