In response to widespread concern and awareness of the damage being done to the environment, the Grand Duchy of Luxembourg intends to use taxation as a lever to encourage companies to invest in the ecological and energy transition as well as in digital transformation. By adapting the investment tax credit regime, Luxembourg is pursuing its objective of supporting companies in their green and digital investments, which can make a difference for the environment.
The bill n°8276 ( the “Bill”) amending the amended law of 4 December 1967 on income tax (hereinafter the “Law”) was submitted to the Chamber of Deputies on 13 July 2023.
The purpose of the Bill is to amend the investment tax credit regime as set out in article 152bis of the Law, with effect from the tax year 2024.
A) Main changes brought to the regime
The Bill proposes to substantially modify the investment tax bonus by (i) repealing the additional investment tax credit and (ii) introducing a tax credit for investments and operating expenses incurred as part of a company's digital transformation or ecological and energy transition. The new tax bonus will also be granted for operating expenses, unlike the text currently in force.
When it comes to digital transformation, simply digitalizing processes is not enough to qualify as transformative. The changes must be significant and must radically alter the company's business model, failing which the tax bonus cannot be granted. To guide taxpayers, a list of objectives to be achieved for both the digital transformation and the ecological and energy transition is given, as well as a list of investments and operating expenses that are excluded from the bonus (for example self-propelled vehicles).
The rate of the tax relief for overall investment has been increased from 8% to 12%, at the same time removing the EUR 150,000 investment bracket condition. In other words, based on the acquisition or cost price of investments made during a financial year, a 12% bonus is granted on investments in tangible depreciable assets other than buildings, livestock and mineral and fossil deposits.
An additional bonus of 6% is granted for expenditure and investments incurred as part of a digitalization project or an ecological and energy transition project. Thus, such an investment (including operating expenses) will qualify for a total tax bonus of 18% (with the exception of certain investments as described in the Bill).
Taxpayers may apply for a tax bonus of 12% for investments or operating expenses that have a direct economic link with the acquisition of software or patent. However, in cases where such a request is made, the income generated by the said software will be excluded from the intellectual property tax regime.
B) The procedure to follow
The procedure takes the form of an attestation and certification system.
To begin with, an application for an eligibility certificate must be submitted to the Minister responsible for the Economy. This application must contain, among other things, a description of the project, the desired objective, the expected effect, the stages and the investments and operating expenses to be made as part of the company's digital transformation or ecological and energy transition.
Once the eligibility certificate has been obtained, an application to obtain the beneficial certificate followed by the eligibility certificate must be sent to the same minister no later than 2 months after the end of the operating year in which the investment or operating expenses were incurred.
After checking the application, the Minister must issue the beneficial certificate no later than 9 months after the end of the operating year in which the investment or operating expenses were incurred.
Finally, the tax bonus is deducted from the tax due for the tax year in which the operating year in which the investments or operating expenses were made ends.
The outstanding tax bonus may be deducted from the tax due for the ten subsequent tax years, except for the portion corresponding to the tax bonus for the acquisition of software or patent.
Ecology and environment are a constant concern for people at both national and international level. The Grand Duchy of Luxembourg is listening, adapting and taking the opportunity to encourage its companies to modernise in an eco-responsible way as part of this tax reform.
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