Luxembourg Outlook 2025

As we enter the New Year, Luxembourg stands poised for strong economic performance. The European Commission's Autumn economic forecast report projected a GDP growth of 2.3% in 2025, compared to 1.2% in Q4 2024. This positive outlook is supported by the measures proposed by Gilles Roth, the Luxembourg Minister of Finance, in the Bill of Law No. 8414 (the “Bill”), which was designed to boost purchasing power. The measures introduced under the Bill include:

• Reduction of Corporate Income Tax (“CIT”)

  The current CIT rate will be reduced by 1% from 17% to 16% for the tax year 2025. The aggregate rate of CIT, Municipal Business Tax (“MBT”) in the city of Luxembourg (6.75%) and the contribution to the employment fund will be reduced from the current 24.94% to 23.87%. Companies with taxable profit below EUR 175,000 will be eligible for a CIT reduction from 15% to 14%.

• Exchange Traded Funds (“ETF”) Exemptions

  The existing subscription tax exemption for passively managed ETFs will be extended to include actively managed ETFs.

• Clarification of the Interest Limitation Rules

  A new “single entity group” definition will be introduced into the Luxembourg income tax law under Article 168bis (1). This applies to entities which are not included in a financial consolidation. Additionally, specific rules can be applied to grant group exemptions for these entities upon request. This is particularly relevant in cases of orphan securitisation vehicles not included in a financial consolidation.

• Société de Gestion de Patrimoine Familial (“SPF“) Regime Adjustment

  The minimum annual amount of subscription tax applicable to SPF is increased from EUR 100 to EUR 1,000. Administrative fines may also be imposed in the event of specific violations of the SPF regulations.

The Bill of Law No. 8414 also introduced several attractive new measures for individual taxpayers. These include increasing the tax-exempt portion of profit-sharing bonuses, granting a 50% tax exemption on gross annual remuneration up to €400,000, and reducing bureaucratic obstacles for hiring international talent. Combined with the expected wage indexation during the year, these measures are designed to stimulate consumer spending.

In addition to the above, Luxembourg’s Bill of Law No. 8388 on Digitalisation and modernisation of the tax administration provided clarity on certain tax provisions and introduced the following changes:

Net Wealth Tax (“NWT”) Adjustment

The NWT to be calculated only based on the taxpayer's total balance sheet calculated as follows:

• up to EUR 350,000 applicable minimum NWT of EUR 535;

• higher than EUR 350,000, but not exceeding EUR 2,000,000, subject to applicable minimum NWT of EUR 1,605; or

• exceeding EUR 2,000,000 liable to a minimum NWT of EUR 4,815.

The maximum amount of NWT is therefore reduced from EUR 32,000 to EUR 4,815 benefiting some of the taxpayers.

Clarification of the Share Class Redemptions

In line with Luxembourg case law, liquidation proceeds where there is a redemption of a class of shares and their cancellation that results in a capital reduction within 6 months qualifies for the withholding tax exemption in Luxembourg. The so called “partial liquidation” is subject to the conditions that:

• the redemption covers the entirety of the class of shares;

• the classes of shares were set up at the incorporation or on capital increase;

• each class of shares features different economic rights, defined in the bylaws of the company;

• the redemption price can be determined based on criteria set out in the bylaws of the company, or in a document referred to in the bylaws of the company, allowing to reflect the fair market value of the class of shares upon its redemption.

Opting out of the participation exemption regime

As from the tax year 2025 the taxpayers may renounce certain exemptions on dividends received, mainly:

• the exemption provided by article 115 LIR providing for the 50% partial exemption regime on dividends; and

• article 116 LIR related to the participation exemption regime and the dividends received from qualifying participations where the participation held represents at least 10% of the share capital of the subsidiary or has an acquisition price of at least EUR 1.2 million. The opting out is only allowed when the exemption is granted (only) based on the EUR 1.2 million threshold.

These measures provide further flexibility and allow the taxpayers to utilise their tax losses carried forward.

These changes are a welcome development that will enhance Luxembourg's competitiveness and foster economic growth, particularly in the value-add services sector. Although some measures may initially lead to a reduction of tax revenue, this is expected to be offset by increased revenues in the medium term. Furthermore, these initiatives reflect the Luxembourg Government's clear ambition to embrace digital transformation. The anticipated decrease in interest rates is expected to boost corporate investments by providing access to cheaper capital. Additionally, improved dynamics in the real estate market will positively impact the economy.

The unemployment rate is projected to stabilise in 2025, with a minor recovery on the horizon. As most energy subsidies are phased out, inflation is expected to remain stable, moderated by a slowdown in food price increases.

Pillar Two

In 2023, the Luxembourg parliament adopted Bill no. 8292, implementing EU Directive 2022/2523 on global minimum taxation for multinational enterprise groups, the so called “Pillar Two Law”. Given the significant compliance burden that Pillar Two presents for in-scope taxpayers, a number of safe harbour provisions have been included in the legislation to help ease the transition.

The OECD issued guidance in June 2024, allowing jurisdictions that introduced the Qualifying Domestic Minimum Top Up Tax (“QMDTT”) safe harbour to take account of the specific situation of securitisation vehicles in the context of the Pillar Two rules. Although securitisation vehicles rarely form part of a ‘Pillar Two Group’, Luxembourg’s government opted to allow securitisation vehicles within the scope of Pillar Two to have their potential additional tax allocated to other constituent entities in Luxembourg. This option allows Luxembourg to retain the benefit of the QMDTT safe harbour, effective as of 1 January 2025. Additionally, as many Luxembourg companies will be finalising their FY24 financial statements in the first half of 2025, it remains to be seen whether administrative guidance clarifying some of the issues will be issued early in 2025.

Luxembourg National Identification Number

Another topic on the agenda for businesses in Luxembourg in 2025 is the new requirement from the RCS that any individual registered or to be registered with the Luxembourg Business Register in roles such as manager, director, partner, shareholder, auditor, or authorised person, must provide their Luxembourg National Identification Number (“LNIN”) to the Register. This requirement derives from Article 12bis of the Luxembourg law dated 19 December 2002 concerning the RCS and the bookkeeping and annual accounts of companies, as amended. The LNIN can be registered through either the standard filing process by completing the dedicated field requesting the LNIN confirmation, or on a voluntary basis by updating the natural person’s registered information on the RCS online portal. Entities registered with the RCS before November 12, 2024, will have a transitional period to update their records for free. After this timeframe, it will be compulsory to provide the required identification number.

In Conclusion

The 2025 outlook for Luxembourg is positive, driven by the government’s commitments to enhancing the country’s competitiveness and providing flexibility to local businesses, as well as the strong international business community promoting Luxembourg globally.

International players and investors can be reassured of the country's stability and investment structuring possibilities. Additionally, with the European Commission’s focus on ensuring competitiveness of the block’s financial sector, we anticipate more initiatives aimed at developing capital markets and reinvigorating securitisation as a means to achieve this goal.

For further information on any of the topics discussed above or to discuss how Cafico International can assist your business please reach out to our dedicated local expert, Arek Kwapien.