Reform of article 152bis LIR relating to tax credits for investment

Reform of article 152bis LIR (income tax law) relating to tax credits for investment

A bill No. 8276 voted by the Chamber of Deputies on December 19, 2023 aims to modify the amended law of December 4, 1967 concerning income tax.

This bill aims more precisely to restate article 152bis LIR on tax credits for investment. On the agenda: an expansion of the scope of the investment bonus, particularly to investments and expenses made by companies as part of digital transformation and ecological and energy transition projects. This new regime will be applicable from the 2024 tax year.

  

Reminder of the regime applicable until the 2023 tax year :

Article 152bis LIR provides that commercial, industrial, mining or artisanal companies located in the Grand Duchy of Luxembourg which make investments, benefit, upon request, from a tax credit for investment. This bonus has 2 parts:

- An additional  investment

- An overall investment

 

1. Additional investment

The first benefit which since 2017 amounts to 13% of  the additional investment in tangible depreciable assets other than buildings, agricultural livestock and mineral and fossil deposits, made during the operating year concerned.

The additional investment for a financial year is equal to the value attributed, at the end of the said financial year, to the category of goods concerned, reduced by the reference value of the same category of goods. The following assets, acquired during the financial year, must however be eliminated:

- assets depreciable over a period of less than 3 years,

- property acquired by bulk transfer and free of charge for a company,

- used goods,

- isolated assets acquired free of charge,

- certain motor vehicles.

The investment thus determined is to be increased by the depreciation practiced on eligible assets acquired during the financial year.

The reference value, which amounts to a minimum of €1,850, is determined by the arithmetic average of the values that these properties have respectively reached at the close of the 5 previous financial years.

The additional investment thus calculated cannot exceed the eligible investment made during the financial year concerned.

 

2. The Overall Investment

The 2nd bonus is granted due to the investment made during the operating year.

- This bonus has amounted since 2017 to 8% for the 1st tranche not exceeding €150,000 and since 2013 to 2% for the investment tranche exceeding €150,000 with regard to

• investments in tangible depreciable assets other than buildings, agricultural livestock and mineral and fossil deposits,

• investments in sanitary and central heating installations incorporated into hotel buildings and

• investments in social buildings;

 

- since 2017 at 9% for the 1st tranche not exceeding €150,000 and at 4% for the investment tranche exceeding €150,000 with regard to investments in fixed assets approved to be eligible for special depreciation

 

- from 2018, the tax credit for the acquisition of software is 8% for the first investment tranche not exceeding €150,000 and 2% for the investment tranche exceeding €150,000. It cannot exceed 10% of the tax due for the tax year during which the financial year during which the software acquisitions are made is closed.

However, the following are excluded:

- assets normally depreciable over a period of less than 3 years,

- property acquired by bulk transfer of a company,

- used goods,

- certain motor vehicles.

 

However, used goods are eligible for the tax credit for investments up to an amount of €250,000 when they are invested by the taxpayer as part of a first establishment.

 

New regime applicable from tax year 2024 :

- The tax credit for additional investment disappears.

- The basic rate of the tax credit for overall investment in depreciable tangible assets other than buildings, agricultural livestock and mineral and fossil deposits will be increased from 8% to 12% and the condition of the tax bracket investment of 150,000 euros is canceled. For investments eligible for the special depreciation provided for in article 32bis LIR, the rate of tax credit for overall investment is increased to 14%.

- The tax credit amounts to 18% of investments and operating expenses made as part of a digital transformation project or as part of a company ecological and energy transition project , with the exception of investments in tangible depreciable property for which the tax credit amounts to 6%.

- Extension of the scope of the investment tax credit to investments and expenses made by Luxembourg companies as part of digital transformation or ecological and energy transition projects. Investments in tangible depreciable assets made as part of a digital transformation or an ecological and energy transition will be eligible for an additional tax credit of 6%. Thus, such an investment will be entitled to a total tax credit of 18%.

 

Definitions:

- Definition of digital transformation: the bill defines digital transformation as the achievement of a process innovation or an organizational innovation through the implementation and use of digital technologies.

 

- Definition of process innovation: the bill defines process innovation as being the implementation of a new or significantly improved production or distribution method, this notion involves significant changes of a technical nature, hardware or software. Exclusions  from this definition are:  minor changes or improvements, increases in the means of production or service by the addition of manufacturing systems or logistics systems which are very similar to those already in use, the cessation of the use of a process, the simple replacement or expansion of equipment, changes arising solely from variations in factor prices, customized production, adaptation to local markets, regular seasonal and other cyclical changes and trade in new or significantly improved products.

 

- Definition of organizational innovation: the bill defines organizational innovation as the implementation of a new organizational method, the organization of the workplace or the external relations of the company. Exclusions from this definition are: changes based on organizational methods already used in the company, changes in business practices, mergers and acquisitions, cessation of use of a process, simple replacement or expansion of equipment, changes arising solely from variations in factor prices, customized production, adaptation to local markets, regular seasonal and other cyclical changes as well as trade in new or significantly improved products.

 

- Definition of Circular economy: the bill defines the circular economy as an economic model in which the value of products, materials and other resources is maintained in the economy for as long as possible to improve their efficient use in production and consumption, thereby reducing the environmental impact of their use, and minimizing waste and the release of hazardous substances at all stages of their life cycle, in particular through the application of the waste hierarchy.

 

- Definition of the ecological and energy transition: the bill defines the ecological and energy transition as any change reducing the environmental impact, in the production and consumption of energy or the use of resources, said change having to be significant and technical or material. Excluded from this definition are cessation of use of a process, simple replacement or expansion of equipment, changes resulting solely from variations in factor prices, regular seasonal and other cyclical changes, and trade of new or significantly improved products.

 

Terms :

Investments and operating expenses relating to digital transformation or economic transition are as follows:

- Investments in tangible depreciable assets other than buildings, agricultural livestock and mineral and fossil deposits;

- Investments in software or patents other than those acquired from a related company within the meaning of article 56 LIR;

- Expenditures made for the use or concession of the use of patents or software, except when this use or this concession of use is granted by a related company within the meaning of article 56 LIR;

- Expenditures on consulting, diagnostic and technical support services provided by external providers that are not related to the normal operating expenses of the business, such as regular tax or legal advisory services, or advertisement ;

- Expenses for personnel directly assigned to the digital transformation or the ecological and energy transition of the company;

- Training expenses for staff directly assigned to the digital transformation or the ecological and energy transition of the company

The investments and operating expenses inherent to digital transformation are those which, in the case of digital transformation, meet at least one of the following objectives:

- Significantly improve the energy efficiency of a company's production process so as to save at least 20% of the quantity of energy used, determined in relation to the average energy performance of said process during a reference period of five operating years preceding that of the start of the ecological and energy transition

- Implement an innovative economic model within the company, including in terms of the circular economy, in order to create new value for the company's stakeholders

- Significantly redefine the entire provision of services provided by the company in order to create new value for the company's stakeholders;

- Significantly transform the company's organization so as to create new value for the company's stakeholders;

- Significantly redefine all of the company's processes in order to substantially increase the identification and mitigation of digital risks of the company's activities

 

The investments and operating expenses inherent to the ecological and energy transition are those which meet at least one of the following objectives:

- significantly improve the energy efficiency of a production process of the company so as to save at least 20 percent of the quantity of energy used, determined in relation to the average energy performance of said process during a period of reference of five operating years preceding that of the start of the ecological and energy transition;

- significantly decarbonize a production process of the company so as to reduce greenhouse gas emissions by at least 40 percent, determined in relation to the average emissions produced from said process during a reference period of five financial years operating period preceding that of the start of the ecological and energy transition;

- produce or store energy produced from renewable non-fossil sources so as to meet the company's energy needs through self-consumption. Energy produced from renewable non-fossil sources includes wind energy, solar thermal and photovoltaic energy, geothermal energy, ambient energy, tidal, wave and other marine energy, hydroelectric energy, biomass, landfill gases, gases from wastewater treatment plants, biogas, as well as renewable hydrogen and its renewable derivatives;

- reduce air pollution at the company's production site beyond the limits of emissions of pollutants covered by the Grand-Ducal regulation of June 27, 2018 concerning the reduction of national emissions of certain atmospheric pollutants and the grand -ducal regulation of May 30, 2005 implementing  the Directive 2004/107/EC of the European Parliament and of the Council of December 15, 2004 concerning arsenic, cadmium, mercury, nickel and polycyclic aromatic hydrocarbons in ambient air. The potential for reducing emissions from economic activity is determined in relation to the average emissions from said production site during a reference period of the five operating years preceding that of the start of the ecological and energy transition;

- significantly improve the material efficiency of a production process of the enterprise so as to reduce the use of primary raw materials by at least 15 percent or to replace primary raw materials by at least 20 percent by by-products or secondary raw materials. The improvement in material efficiency is determined in relation to the average consumption of primary raw materials for said process during a reference period of the last five operating years preceding that of the start of the ecological and energy transition;

- implement a production process to extend the use of products through their reuse.

 

Procedure :

The procedure to follow to obtain the tax credit for investments and operating expenses inherent to the digital transformation and the ecological and energy transition is as follows:

1. obtaining a certificate of eligibility for investments and operating expenses relating to a digital transformation or ecological and energy transition project. The request to obtain this certificate must be sent to the Minister of the Economy

2. obtaining a certificate issued by the Minister of the Economy which certifies, for an operating year, the reality of the investments and operating expenses made during this operating year, as well as their compliance with eligible investments and expenses.

 

Detailed steps :

1. sending the request for a certificate of eligibility to the Minister of the Economy

2. Commencement of investments and operating expenses

3. opinion issued by an advisory commission

4. issue of the eligibility certificate by the Minister of the Economy

5. request for a certificate from the Minister of the Economy which certifies the reality of investments and operating expenses as well as their compliance (to be renewed for each operating year)

6. issue of said certificate by the Minister of the Economy

7. request the tax credit as part of the tax declaration by attaching the eligibility certificate