Luxembourg’s proposed tax reforms for 2024: Share class redemptions (alphabet classes) clarification and other key highlights
On 23 May 2024, the Luxembourg Government introduced a bill of law before the Luxembourg Parliament aiming notably to clarify the tax treatment applicable to share class redemptions (the Bill).
The Bill also includes other tax measures such as new minimum net wealth tax rules, opt-out regime for dividend and capital gain exemption, and electronic filing requirements.
Clarification on share class redemptions
After years of uncertainty and following recent case law. The Bill clarifies that a redemption of an entire class of shares followed by its cancellation is considered as a partial liquidation and therefore not subject to Luxembourg withholding tax if:
- The share class is fully cancelled within six months
- Share classes were established at incorporation or during a capital increase
- Each share class has distinct economic rights defined in the articles of association
- The redemption price reflects the fair market value and is determined based on the articles of association or a referenced document
The above remains subject to the general anti-abuse rule.
Minimum Net Wealth Tax (NWT) changes
Effective 1 January 2025, the minimum NWT will be streamlined to comply with the Constitutional Court's ruling of November 2023. The new system will be based on the taxpayer's total balance sheet:
- Not exceeding €350,000: Minimum NWT remains €535
- Of €350,000 but not exceeding €2,000,000: Minimum NWT reduced to €1,605 (from €4,815)
- That exceeds €2,000,000: Minimum NWT set at €4,815 (previously €32,100)
Option to opt-out of dividends and capital gains exemption
Taxpayers will have the option to waive the 50 per cent dividend exemption and full participation exemption for income and capital gains meeting specific thresholds.
Taxpayers can choose annually to opt-out – if no opt out the exemption will apply.
This adjustment aims to reduce mismatch between Luxembourg’s tax rules with other participation exemption regimes in other EU countries and would allow the use of carried forward tax losses which are limited in time.
Mandatory electronic filing
As from 1 January 2025, electronic filing of withholding tax returns on directors' fees and wages and assimilated income will become mandatory.
Next steps
The bill will be debated in Parliament and is expected to be voted on later in 2024. The law will take effect the day after its publication in the Luxembourg Official Journal.
The bill of law (in French) can be found here.
