Headline: Luxembourg's New Prime Minister: Championing Lower Taxes, Less Bureaucracy, and a Modern State
In an inaugural address to the Grand Duchy's parliament, newly appointed Prime Minister Luc Frieden pledged to shrink Luxembourg's tax burden and bureaucracy, embarking on a mission to propel the country into a future characterized by peace, freedom, and prosperity.
With a clear parliamentary majority backing his Christian Social People's Party (CSV), Frieden's new coalition has vowed to reduce the tax burden starting January 1, 2024. The Prime Minister hinted at tax adjustments for all individuals, supplemented by further tax cuts, particularly for moderate earners, small enterprises, and young people. In addition, tax relief is on the table for homebuilding, businesses, and young people.
Noting Luxembourg relies on foreign workers, Frieden stressed the importance of keeping their tax regime competitive with other nations. As a result, the notorious wealth tax for private individuals will continue to be absent from their tax code, while children won't pay taxes on inherited wealth moving forward.
The new CSV-led government emphasized the need for a revamped administrative system, focusing on fostering a "more modern, citizen-friendly, digital, and swift" state. Its vow to modify all administrative guidelines applies particularly to the construction sector, where new applications will be approved "by default" when no objections arise from authorities.
Housing construction holds top priority for the authorities, who descrive it as a "national task." Still, the environmental implications of this policy are not negligible. Luxembourg is seeking a balance between nature preservation and progress in infrastructure projects, such as green energy plant construction and bike lanes, without falling prey to excessive and complex rules.
The government values "approriate and efficient" regulations, meaning they want to empower citizens and businesses through practical assistance instead of overwhelming them with unnecessary restrictions. "An environmental and climate policy inspired people instead of irritated them" is the apparent motto of Prime Minister Frieden, revealing an intent to reconcile economic development and sustainability.
Luxembourg's new coalition is also committed to advancing the European Union. It emphasizes the need for enlargement, focusing on aligning with set criteria, especially in terms of the rule of law. Prime Minister Frieden will visit Brussels the following week to present Luxembourg's legislative period and discuss the EU's evolution.
As for specific tax reliefs, the coalition has announced several measures to boost investment and relief for businesses and individuals. For example, the property tax measures, such as reduced registration fees and capital gains tax, have been extended to 2025. The corporate income tax has been lowered, and simplifications such as fewer net wealth tax brackets have been implemented.
Prime Minister Frieden's address highlighted that a modern and accessible administration is crucial for Luxembourg's future prosperity. By embracing modest tax relief and administrative reforms, he aims to position Luxembourg as an attractive destination for businesses and residents alike.
Enrichment Insights:
- Extension of Property Tax Measures:
- Comprehensive property tax measures, such as the reduction in registration fees, and tax benefits for rental investors, have been extended until July 2025 with retroactive effect to January 2025.
- Corporate Income Tax Reduction:
- A 1% reduction in the corporate income tax rate to reduce the standard rate from 17% to 16%.
- Simplified Net Wealth Tax:
- Net wealth tax has been simpliified with only three brackets (EUR 535, EUR 1,605, and EUR 4,815), based on the total balance sheet size.
- Share Redemption Tax Regime Clarification:
- The provisions of the share redemption tax regime have been clarified with specific stipulations.
- Opt-out Mechanism for Dividends and Capital Gains Exemption:
- An annual opt-out mechanism for dividends and capital gains exemption allows taxpayers to choose whether to apply the exemption for each participation in their portfolio.
- Amended Tax Credit for Investment:
- The tax credit for investment has been adjusted to reach up to 18% of eligible investments or expenses, based on specific rules for digital transformation, ecological, and energetic transition, starting in fiscal year 2024.
These measures come as Luxembourg strives to bolster its appeal as a high-value work and investment destination, ensuring both corporations and individual taxpayers reap the benefits of reduced tax burdens and a thriving economy.
