Tax – Luxembourg investment tax credit revised to encourage digital, environmental and energy transition

5 mn

On 19 December 2023, the Luxembourg Parliament passed bill of law 8276 amending the investment tax credit (ITC) rules. 

Reading time: 5 minutes and 54 seconds

 

On 19 December 2023, the Luxembourg Parliament passed bill of law 8276_ (Bill) amending the investment tax credit (ITC) rules. The Bill’s aim is to support the digital transformation of businesses, as well as their environmental and energy transition, thereby strengthening Luxembourg’s competitiveness. The new provisions will apply as from the 2024 tax year.

Current ITC rules

Upon request, a taxpayer may be granted an ITC in respect of eligible investments which they make in their business. The investments must be in an establishment which is located in Luxembourg and intended to remain there permanently. Investments must also be physically implemented on Luxembourg territory or the territory of another State party to the Agreement on the European Economic Area (EEA) (except for investments in certain space equipment).

The current ITC regime can be briefly summarised as follows:

The ITC resulting from the addition of the above may be deducted from the corporate income tax (CIT) due for the tax year during which the financial year in which the investment is made ends. If there is insufficient CIT, the remaining ITC may be carried forward and deducted from the CIT for the 10 subsequent tax years.

Highlights of the new rules

 

 

 

Qualifying investments and expenditure

The new credit will apply to the following:

The new ITC is calculated based on the acquisition price or production costs of the relevant investments made or expenditure incurred during the financial year.

 

Digital transformation and ecological and energy transition

The investments and expenditure must be inherent to the digital transformation or the ecological and energy transition of the enterprise, which is specifically defined in the Bill.

Investments or expenditure relating to digital transformation must fulfil at least one of the following objectives:

 

Investments or expenditure relating to ecological and energy transition must fulfil at least one of the following objectives:

However, certain assets remain excluded. These are: assets depreciable over less than 3 years, motor vehicles, and investments and expenditure to comply with statutory environmental protection obligations.

Eligibility certificate

Grant of the ITC is subject to the issue of an eligibility certificate by the Minister of the Economy. A specific application must be submitted to the Minister of the Economy, containing detailed information on the relevant project.

 

How can we help?

The Tax Law Partners and your usual contacts at Arendt & Medernach are at your disposal to advise on the opportunities offered by the new ITC provisions_

Download the press release

Luxembourg Newsflash – Tax – Luxembourg investment tax credit revised to encourage digital, environmental and energy transition

pdf283 KB