Enlighten your future Coalition agreement 2023-2028 : the tax measures envisaged
Tax measures provided for in the 2023-2028 coalition agreement
Given the difficult economic situation, the Luxembourg government wishes to pursue an economic recovery policy :
- continuing to support households by additional measures in terms of purchasing power ;
- maintaining public investments at a high level in order to respond to current and future challenges linked to demographic change and the dual sustainable and digital transition ;
- through measures aimed to strengthen the competitiveness of the economy in general and the financial center in particular; and
- by creating a favorable conditions for the construction of housing better suited to demand.
By implementing this policy, the Government will ensure that Luxembourg maintains its AAA rating. This rating, a sign of Luxembourg's financial solidity and a guarantee of its economic attractiveness, allows Luxembourg to borrow at advantageous interest rates.
Taxation of individuals
As of January 1, 2024, the personal tax scale will be adapted by 4 index brackets, including the adaptation of the scale of 2.5 index brackets already established.
Unless the budgetary trajectory does not allow it, the other index tranches expired since January 1, 2017 or those to expire will be neutralized in the scale during the current legislature. At the same time, the Government will commit to reducing the tax burden on small and medium incomes.
The Government will begin its work to establish a single tax class with the commitment to present a reform project for the year 2026. Temporarily, the tax treatment of people belonging to the tax class 1a will be revised in the direction of tax relief.
The maximum marginal tax rate for individuals will not be increased. The deductibility of special expenses and extraordinary charges will be made more advantageous and flexible, including the tax treatment of supplementary old-age pensions.
The Government will introduce a tax reduction up to a certain level of income for people entering the working life.
The Government will study how to clarify and simplify the tax treatment of benefits in kind granted by companies to their employees. It will also analyze how the tax framework for teleworking can be clarified.
The trajectory of the CO2 tax defined in the National Energy and Climate Plan (NECP) will be respected. The revenue thus generated will be used to finance social compensation measures, measures and solutions to combat climate change and investments in the energy transition.
The Government will increase the threshold for exempt income received as part of a voluntary activity.
The Government will not introduce a personal wealth tax or a direct inheritance tax. The taxation of direct inter vivos donations will be analyzed with the aim of facilitating the direct transmission of assets. The Government will introduce a tax regime encouraging individuals to invest in young innovative companies in the field of the dual sustainable and digital transition. The Government will strengthen the participatory bonus system and that of inpatriates to support the recruitment and retention of talent. The participation of employees in the capital of the companies which employ them will be encouraged.
Business Taxation
The Government is committed to adapting the rates of community income tax and municipal commercial tax in the medium term so as to bring them closer to the average applicable in OECD countries. Tax relief for small and medium-sized businesses will be examined. The Government will support companies that invest in the sustainable and digital transition as well as in research and development. To do this, the tax credit system will be supplemented. The taxation applicable to business transfers will be analyzed with the aim of promoting the sustainability of these businesses.
Tax policy in the field of housing
On the background of the current crisis in the real estate sector and inflationary pressures, the Government will adopt, for the 2024 fiscal year, certain measures aimed for stimulating the housing construction market in the short term, namely :
- the rate of accelerated depreciation of housing built for rental purposes as well as the length of the depreciation period will be increased. The total amount of the tax concession will be limited ;
- the tax rate on capital gains made on the sale of real estate will be reduced ;
- a new tax credit “Bëllegen Akt” for investment purposes in rental housing by individuals will be introduced ; the “Bëllegen Akt” tax credit for the acquisition of a main residence will be increased ;
- the amounts of tax deductibility of interest expense corresponding to the home occupied by the owner or intended to be occupied by the owner will be increased.
The number of homes for which the taxpayer can claim the new measures aimed at stimulating housing construction in the short term will be limited. The exemption for net income earned through the rental of accommodation through an organization working in social rental management will be increased to 90%. This exemption will be extended in the event of rental of accommodation via municipalities. The income tax exemption regime for capital gains and transfer profits established in article 29 of the amended law of October 22, 2008 relating to the long lease right and the surface right and introducing different administrative and fiscal measures in favor of housing promotion will be extended to the Housing Fund. The Government will analyze, with the banks and supervisory authorities, the current situation regarding the granting of mortgage loans and will examine possible adaptations in line with European law. In addition to the measures put in place in the short term, work relating to the reform of the property tax, the introduction of a national tax on unoccupied housing and the mobilization of land will be continued in the light of the opinion of the bodies consulted and will be completed as soon as possible. In this regard, property tax revenue will remain municipal revenue. A register of unoccupied housing will be put in place. To mobilize more unoccupied land and housing in a crisis context, the level of taxation will be revised upwards and its implementation accelerated. The Government will consult the European Commission in order to agree on the possibilities of achieving an increase in the amount of the tax concession in terms of 3% housing VAT and an introduction of transfers of real estate capital gains within the country. The Government will analyze the introduction of a tax exemption for bonuses paid by companies for the purpose of renting accommodation. The bonus to be exempt will be limited and will be reserved for young employees whose income level does not exceed a certain threshold. Given current interest rates, the Government will analyze the need for a review of the Klimabank system, in particular with regard to the definition of criteria, including social ones, applicable to climate loans. The Government is committed to creating tax incentives allowing companies to create and provide housing, under favorable conditions, to their employees.
European and international taxation
The Government will endeavor to develop the network of double taxation agreements as an instrument for the development of Luxembourg's economic and commercial relations and its financial center. At the European level, the Government will defend the principle of unanimity in tax matters, enshrined in the European treaties, and the maintenance of which has proven itself over recent years, thus guaranteeing that the specificities of each Member State are taken into account. It will oppose the introduction of a tax on digital and financial transactions.
Modernization of tax legislation and tax administrations
In the context of a transversal policy of modernization of tax administrations, the Government will adapt their constitutional laws on an ad hoc basis and make them more accessible, with the aim of strengthening the relationship of trust between taxpayers and tax administrations. To ensure process efficiency, tax legislation and administrative procedures will be simplified. The Government will continue its efforts to digitalize tax administrations. Likewise, digital exchanges with tax administrations will be encouraged and administrative procedures will be digitized, also using artificial intelligence.
Financial center diversification policy
The Government will continue to actively support the development, diversification and promotion of Luxembourg's financial center in all its dimensions and to maintain the primary objective of moving up the value chain in its various fields of activity (banking, insurance, financial services industry). funds, capital markets). It will thus continue to focus on the development of environmentally friendly, sustainable and socially responsible and innovative financial products, positioning the Luxembourg financial center as an international hub for sustainable finance. It will support, among other things, initiatives in the field of Fintech, as well as in gender finance with the dual objective of taking advantage of the financial center to encourage investments incorporating a gender dimension and promoting gender diversity and female leadership in the financial sector as well as in the field of Fintech. The Government will also ensure that it provides a legal framework conducive in particular to alternative funds and the development of digital assets. To strengthen the competitiveness of the financial center, the Government will continually adapt the legal framework and analyze the possibility of reducing the subscription tax for actively managed UCITS-ETF funds. In the same spirit, the Government will analyze the impact of a reduction in the subscription tax for investment funds which invest in sustainable economic activities and will assess whether additional reductions in the subscription tax make it possible to increase the investments in these activities. In order to encourage and accelerate the transition process towards more sustainable energy sources, the Government will work towards better collaboration between the public and private sectors and will continue to promote innovative financing approaches, such as blended finance and social impact investing. The Government will put in place measures to improve the financial education of all citizens, in particular by means of basic finance lessons in primary and secondary schools. In addition, the Government will endeavor to expand the offer of specialized higher education diplomas in finance at the University of Luxembourg, which reflect the importance of Luxembourg as a financial center.
