Luxembourg Tax Update: Key Takeaways from Prime Minister Luc Frieden’s State of the Nation Address

In his State of the Nation Address on June 11, 2024, Luxembourg Prime Minister Luc Frieden introduced several significant fiscal policy initiatives aimed at enhancing the country’s attractiveness to international businesses and investors. Below, we highlight the key measures for corporate entities and provide a brief overview of additional initiatives:

1. Reduction of Corporate Tax Rate

To bolster Luxembourg's competitiveness and align with global standards, the government will:

• Corporate Income Tax Rate Reduction: The corporate income tax rate will decrease from 17% to 16%, effective January 1, 2025. This reduction is designed to enhance Luxembourg's appeal as a prime location for international investment platforms.

2. Enhanced Incentives for Innovation and Investment

The Luxembourg government announces various fiscal and regulatory incentives to support corporate innovation and growth through:

• R&D Tax Credits: Improvements to research and development (R&D) tax credits will simplify the administrative process and encourage more businesses to invest in innovative projects.
• Improved Regulatory Framework: Continuous updates to the legal framework for alternative funds and digital assets will provide a more favourable environment for financial innovations and investments.

3. Simplification of Administrative Procedures for Businesses

Efforts to streamline administrative processes include:

• Unified Digital Platform: A new digital platform will centralize authorization procedures, improving efficiency and reducing redundancy in data submissions.
• "Once Only" Principle: The introduction of the "Once Only" principle aims to reduce the administrative burden on companies by ensuring that information and documents need to be submitted only once across all government services.
• Simplified SME Regulations: A revision of the small and medium-sized enterprises (SMEs) law framework will be introduced to reduce bureaucratic burdens and support SMEs in their growth and development.

4. Support for Sector-Specific Ecosystems

Luxembourg continues to support corporate innovation and growth through various fiscal incentives:

• Asset Management: The reduction of the subscription tax for actively managed ETFs will enhance the Luxembourg’s competitiveness in this growing segment of the asset management industry.
• Data and Communication: The acquisition of Intelsat by SES aims to strengthen Luxembourg’s position in the satellite and data sectors.
• Education & Talents: The creation of new master’s programs in collaboration with ACA and ALFI along with a review for the fiscal year 2025 of the participative bonus and the impatriation regime will ensure the financial sector remains well-equipped with top talent.

5. Commitment to Sustainable Finance

Luxembourg is reinforcing its position as a pioneer in sustainable finance:

• Green and Social Finance Initiatives: The launch of the world’s first accelerator program targeting green finance and digital innovation, alongside ambitions to lead in social project financing, will further solidify Luxembourg’s role in global sustainable finance.

6. Additional Initiatives

In addition to the key measures for corporate entities, the Prime Minister announced several other initiatives aimed at improving the overall economic and social environment in Luxembourg:

• Personal Income Tax Adjustments: Adjustments to personal income tax brackets will increase net income for individuals, allowing savings of up to €1,100 annually, with further adjustments scheduled for January 1, 2025, to enhance purchasing power.
• Housing Investment Incentives: Enhanced tax credits and subsidies for housing investments to address the housing crisis.
• Renewable Energy Subsidies: Increased financial support for photovoltaic installations and the introduction of a new climate bonus.
• Support for Low-Income Households: Expanded energy subsidies and improved fiscal benefits for affordable housing to aid vulnerable populations.
• Digitalization and Efficiency: Development of a unified digital platform to streamline administrative processes and enhance public service efficiency.

These measures collectively reinforce Luxembourg as a prime location for international investment platforms, offering a competitive tax environment, robust support for innovation, and a commitment to sustainable and inclusive growth.

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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