The new coalition agreement, which determines the objectives and the policies that the new Government of Luxembourg shall pursue for the legislature between 2023 and 2028 (the Coalition Agreement) was signed on 16 November 2023. The key announced tax measures are as follows:

(I) Tax measures concerning companies and the financial sector

• The corporate tax rates shall be reduced in the medium-term to bring them closer to the average corporate tax rates of other OECD countries
• Possible reduction of the subscription tax for actively managed exchange-traded funds having the form of UCITS or investment funds investing in sustainable activities
• Tax reductions for small and medium sized companies shall be implemented
• Tax credits for companies investing in the green or digital transition or practicing research and development shall be increased
• Tax incentives for the transmission of companies will be introduced
• Companies developing co-working spaces for remote working at the proximity of the border shall be fiscally incentivized
• The double tax treaty network shall continuously be developed
• The Government shall not favor the introduction of a financial and digital transaction tax

(II) Tax measures concerning individuals

• No increase of the marginal tax rate and no introduction of a net wealth tax
• The income tax bands for individuals shall be adapted on 1 January 2024 to consider the past 4 indexations, resulting in a reduction of the overall tax liability 
• The employee bonus scheme (prime participative) and the inpatriate regime shall be reinforced to attract and retain new talents. Participation by the employees in the stock of their employers participation shall be incentivized
• A draft bill for an extensive tax reform abolishing the different tax classes, shall be tabled by 2026. In the meantime, taxpayers classified in class 1a (e.g. single parents and widows) shall benefit from unspecified tax reductions
• There will be no inheritance tax in direct line. The gift tax for in direct line donation shall be reformed
• Tax incentives for investments by individuals in start-ups active in the green and digital transition shall be created
• The deductibility and flexibility of special and extraordinary expenses, including complementary pensions, shall be increased

(III) Temporary tax measures for the housing sector

• The rate and the period of the fixed and capped accelerated amortization for real estate built for renting purposes shall be increased again
• The tax rate applicable to capital gains related to the sale of immovable property shall be temporarily reduced again
• The VAT tax rebate for the acquisition of the main residence shall be further increased (increased already this year to EUR 30.000). A similar VAT tax credit shall be introduced for natural persons investing in housing for the purpose of renting
• The deductibility of interest paid in relation to loans contracted for the acquisitions of the main residence shall be increased 
• The threshold for the application of the reduced VAT rate of 3% on housing shall be increased (subject to EU approval)
• The reform of the property tax, establishing in particular a tax on empty housing, will be pursued 
• An employee rental help scheme shall be implemented