Net wealth tax is established using the general tax base, in other words, by assessing taxable wealth. It applies to opaque (non-transparent) companies only.
It affects companies' net assets as they appear on their balance sheet at the end of a tax period:
- resident opaque companies are taxed on their global assets (Luxembourg assets + foreign assets);
- non-resident opaque companies are taxed only on net wealth held on Luxembourg soil.
Companies must file a net wealth tax declaration with the Luxembourg Inland Revenue (ACD).
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- Impôt sur la fortune - déclarations et annexes
Persons subject to net wealth tax
Only opaque companies are subject to net wealth tax, namely:
- public limited companies (sociétés anonymes – SA), partnerships limited by shares (sociétés en commandite par actions – SECA) and European companies (société européenne - SE) whose taxable wealth amounts to at least EUR 12,500;
- limited liability companies (sociétés à responsabilité limitée – SARL) whose taxable wealth amounts to at least EUR 5,000.
- opaque companies which have an equity holding in a transparent company are subject to net wealth tax in relation to the shares owned. Transparent companies must therefore also complete a net wealth declaration so that the Luxembourg Inland Revenue (ACD) can determine the amount of each of their shares.
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.
Persons not subject to net wealth tax
In 2006, net wealth tax was withdrawn for natural persons, including in the case of their being partners in:
- a sole proprietorship (entreprise individuelle);
- a transparent company, namely a:
Net wealth tax also does not affect:
- variable capital pension savings companies (sociétés d’épargne pension à capital variable – SEPCAV);
- securitisation companies;
- venture capital companies;
- family wealth management companies (sociétés de gestion de patrimoine familial – SPF);
- investment funds.
Net wealth tax is determined using 3 different bases:
- the general tax base every 3 years;
- the new tax base before the end of a 3-year period, if the increase or decrease in the taxpayer's wealth exceeds certain limits;
- the special tax base if the tax liability starts or finishes, i.e. when:
- a personal exemption ends;
- a non-resident taxpayer becomes resident or vice versa.
The special tax base is based on taxable wealth as determined at the start of the calendar year following the determining event.
Breakdown of wealth
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:
- furniture included in fixed assets;
- intangible items (e.g. patents);
- other assets (e.g. listed securities and receivables).
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:
- every 3 years;
- if the unit value varies by more than one fifth or more than EUR 75,000.
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.
Declaration of net wealth
Resident companies can:
- either submit an online net wealth tax return via the MyGuichet online assistant.
The various fields in the form can be automatically completed through the import of a structured XML file;
- or submit the net wealth tax return (in paper format) to the competent tax office and indicate their total wealth (provided it exceeds EUR 2,500) before 31 May of every year.
Non-transparent legal entities must complete the first part of the net wealth tax return.
Partnerships where at least one of the managers is a legal person subject to net wealth tax have to complete the second part of the net wealth tax return in order for the Luxembourg Inland Revenue to determine the amount of each partner's share in the company's net wealth.
Amount of tax
Net wealth tax is calculated using the following formula:
Net wealth tax = tax base x rate of tax
Exemptions and reductions
Full exemption for holdings (parent-company and subsidiary regime)
In principle, equity holdings are excluded from net wealth if:
- the parent company is:
- either a resident capital company;
- or the Luxembourg permanent establishment of a capital company resident in a member state of the European Union, a state which is a party to the European Economic Area (EEA) agreement or a country covered by a tax agreement;
- the subsidiary is an eligible holding, in other words:
- either a fully taxable resident capital company;
- or a capital company resident in the European Union;
- or a capital company established in a non-EU country with or without a tax agreement with Luxembourg, on condition however to being subject there to a comparable taxation to the taxation to which it would have been subject in Luxembourg, i.e. if the effective rate of taxation is at least 10.5 % (standard administrative practice: half of the corporate income tax rate);
- and the equity holding represents at least 10 % of the share capital in the subsidiary or the purchase cost is at least EUR 1.2 million.
Reduction for corporate entities if the reserves are held for 5 years
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:
- to enter, before the end of the following year, in a reserve account an amount equivalent to 5 times the reduction requested and;
- to maintain the reserve in question on their balance sheet for the 5 years following that of the request for a reduction.
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.
- the net wealth tax due by SA Luxembourg for year 01 amounts to 15 million.
- corporate income tax for the same assessment year is 10 million.
- profit after tax is 30 million and results and reserves carried forward is 15 million.
→ 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).