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Luxembourg Outlines Details Of Future Tax Reform

Luxembourg's new Prime Minister Xavier Bettel has presented a Government Declaration to the country's Chamber of Deputies, outlining details of plans to reform taxation in the Grand Duchy.

The aim of the envisaged tax reform is to ensure social justice, to boost growth and to create jobs in Luxembourg, while at the same time generating additional revenues for the state, and ensuring that Luxembourg is not placed on any foreign 'grey or black lists' of jurisdictions deemed uncooperative in tax matters.

As part of the reform, the Government plans to set up a consultative tax committee, tasked with advising Finance Minister Pierre Gramegna on national and international tax issues, to improve the Grand Duchy's fiscal attractiveness and competitiveness, and to preserve its ratings. Furthermore, the Government aims to introduce a notional interest mechanism, to boost investment.

Underscoring its intention to prepare a large-scale reform of individual income tax, the Government said that it would 'individualize' the tax system, involving for example a shift away from the joint taxation of married couples. The Government also pledged to analyse critically existing tax breaks in the Grand Duchy, to ensure that the provisions are appropriate and efficient, promoting those that make sense.

In addition, the Government revealed plans to examine the various tranches in the progressive income tax scale, notably with a view to addressing the phenomenon of so-called 'middle class belly.' This metaphor describes the relatively heavy tax burden imposed on middle-income earners, arising as a result of a particularly steep rise in the progressive income tax curve.

Sending a clear signal to investors, the Government vowed not to introduce a wealth tax on individuals in Luxembourg, nor to introduce an inheritance tax. Further, the Government intends to maintain the current tax regime applicable to risk capital investment vehicles (SICARs). In contrast, in the area of private equity, the Government aims to examine the existing tax regime and to make strides to improve the attractiveness of the system for investors.

While refusing to specify what the value-added tax (VAT) rate rise will be, the Government nevertheless made clear that the normal rate is to remain the lowest in the European Union. Finally, the Government said that it would strive to maintain the super reduced VAT rate of 3 percent.

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