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SITUATION: CORONAVIRUS / COVID-19
In the context of the coronavirus pandemic, the Government has put in place a number of measures to support taxpayers, whether they be legal entities or natural persons.
For more information please consult our news item on the subject.
Net wealth tax is established using the general tax base, in other words, by assessing the taxable wealth. The tax applies to opaque companies.
It is levied on the companies' net assets indicated on their balance sheet at the end of a tax period:
Companies must file a net wealth tax declaration with the Luxembourg Inland Revenue (ACD).
Opaque companies are subject to net wealth tax, namely:
SNC Luxembourg is a transparent company whose partners are public limited company A with a holding of 45 % and natural person B with 55 %.
=> B is exempt from net wealth tax.
=> A, however, must include its share (45 %) in the invested net assets of SNC Luxembourg in its taxable wealth.
In 2006, net wealth tax was abolished for natural persons, including in the case of their being partners in:
Net wealth tax also does not affect:
Net wealth tax is determined using 3 different bases:
The special tax base is based on taxable wealth as determined at the start of the calendar year following the determining event.
Assets, also called economic units consist of working capital (or wealth) from industrial and commercial, mining or trade-based companies. Items which do not fall into this category do not form part of taxable wealth.
The sum of all these items, after deduction of certain liabilities and exemptions, constitutes total net wealth:
Tax base = Gross assets – Liabilities – Exemptions
The assessment of wealth consists in assigning a "unit value" to its constituent items. In principle, the value of taxable assets is the estimated sales value.
Unit values are determined by the Luxembourg Inland Revenue using separate assessments (business reports) which are sent to the owner, the tax departments and communal authorities concerned.
For working capital, the company in question consists of an economic unit to which an overall unit value is assigned. This represents the price of the company for a potential purchaser. It consists of:
Property is valued separately using the method described for property tax.
Other assets (listed securities, receivables) are individually valued based on their actual value on the first day of the assessment year.
The assessment of the unit value for working capital is carried out at the following frequency:
When a new economic unit is created, a specific valuation is required.
Net wealth tax is calculated based on the value of all the property, titles and assets making up the company's assets as of 1 January each year, after deduction of any liabilities encumbering these assets.
For resident companies, assets located abroad form part of the tax base, unless they are in a country covered by a tax agreement (in this case, they are generally tax-exempt in Luxembourg).
For non-resident companies, the tax base is restricted to assets of Luxembourg origin.
Corporate entities are in principle required to submit an online declaration for net wealth tax with the online input assistant on MyGuichet.lu.
The various fields in the assistant can also be automatically prefilled through the import of a structured XML file.
Corporate entities excluded from the mandatory online filing must continue to submit their declaration in paper format. These entities are:
Net wealth tax is calculated using the following formula:
Net wealth tax = tax base x rate of tax
In principle, equity holdings are excluded from net wealth if:
Resident opaque companies and Luxembourg permanent establishments of non-resident opaque companies (provided that they maintain separate accounts) can request a reduction in net wealth tax in their corporate income tax declaration (section III), on condition that they undertake:
If however, before the end of the 5-year period, the company distributes all or part of the reserve created, net wealth tax for the year in question will then be increased by 1/5th of the amount of the reserve used.
SA Luxembourg wishes to be exempted from net wealth tax of 200 that it would normally have to pay for year N.
=> SA Luxembourg must therefore set up an undistributable reserve of 1,000 (= 200 x 5) until the year N+6.
The tax reduction corresponds to 1/5th of the reserve created, without exceeding the sum of the corporate income tax (IRC) and of the employment fund contribution due for the tax year.
→ Corporate income tax calculated for year 01 enables a reduction of 10 million in net wealth tax.
However, the sum of the result for the financial year and reserves or results carried forward (30+15=45 million) is not enough to set up a reserve equivalent to 5 times the net wealth tax (5x10= 50 million).
SA Luxembourg can therefore only offset an amount of 9 million, i.e. 1/5 of the total profits for the financial year plus reserves and results carried forward (45/5= 9 million).
We will take the same example, but in year 05 SA Luxembourg distributes the 9 million in the 'net wealth tax reserve'.
→ The conditions required for the net wealth tax credit are no longer satisfied (period of 5 years) so the reduction in net wealth tax for year 01 will be cancelled by an increase in the net wealth tax for year 05 amounting to one fifth of the reserve used – in this case, 1.8 million (9/5=1.8 million).
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