Tax – Luxembourg minimum net wealth tax provisions unconstitutional

On 10 November 2023, the Luxembourg Constitutional Court concluded that §8(2) a) of the law on net wealth tax was contrary to the constitutional principle of equality. Pending legislative reform, the taxpayers concerned will be subject to the minimum net wealth tax of EUR 1,605 when their total balance sheet is between EUR 350,000 and EUR 2,000,000, instead of the minimum net wealth tax of EUR 4,815.

23/11/2023

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On 10 November 2023, the Luxembourg Constitutional Court concluded_ that §8(2) a) of the law on net wealth tax was contrary to the constitutional principle of equality. Pending legislative reform, the taxpayers concerned will be subject to the minimum net wealth tax of EUR 1,605 when their total balance sheet is between EUR 350,000 and EUR 2,000,000, instead of the minimum net wealth tax of EUR 4,815.

 

Background

Luxembourg imposes net wealth tax (NWT) on Luxembourg companies based on their unitary value, i.e. the adjusted net asset value as determined, in principle, as at 1 January of each year, at the rate of 0.5% (and 0.05% for the upper tranche of the net wealth exceeding EUR 500 million), subject to the application of a minimum NWT (MNWT).

Luxembourg companies are subject to a fixed MNWT that is set at EUR 4,815 for Luxembourg companies whose financial assets, receivables from affiliated undertakings, transferable securities and cash deposits (reflected in accounts 23, 41, 50 and 51 of the Luxembourg standard chart of accounts, respectively) cumulatively exceed (i) 90% of their total balance sheet and (ii) EUR 350,000.

Otherwise, the MNWT is calculated on the basis of the total balance sheet according to a progressive tax scale:

 

Total amount of balance sheet (in €) MNWT (in €)
Lower than or equal to 350,000

535

Higher than 350,000 and lower than or equal to 2,000,000 1,605

Higher than 2,000,000 and lower than or equal to 10,000,000

5,350
Higher than 10,000,000 and lower than or equal to 15,000,000 10,700
Higher than 15,000,000 and lower than or equal to 20,000,000 16,050
Higher than 20,000,000 and lower than or equal to 30,000,000 21,400
Higher than 30,000,000

32,100

 

In shorts, taxpayers with a total balance sheet amount between EUR 350,000 and EUR 2,000,000 are subject to the MNWT of either EUR 1,605 (standard case), or EUR 4,815 if their financial assets, receivables from affiliated undertakings, transferable securities and cash deposits cumulatively exceed 90% of their total balance sheet.

This difference in treatment was recently analysed by the lower administrative court, which decided to refer the case to the Constitutional Court (case no. 45910 of 18 April 2023_).

The Luxembourg Constitutional Court ruled that §8(2) a) of the law on net wealth tax was contrary to the constitutional principle of equality. Pending legislative reform, the taxpayers concerned will be subject to the MNWT of EUR 1,605 when their total balance sheet is between EUR 350,000 and EUR 2,000,000, instead of the fixed MNWT of EUR 4,815.

 

How can we help?

The Tax Law partners and your usual contacts at Arendt & Medernach are at your disposal to advise on how this Court decision is likely to impact your operations in Luxembourg_

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