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Increase in Minimum Annual Tax Burden in Luxembourg and Restructuring Solution

Contributed by Fiducenter (Cyprus) Ltd
06 March, 2013

Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]


We reported on 30 November 2012 about the increase of the minimum flat income tax that Luxembourg was planning to impose as from 2013. The related provisions have been voted by the Luxembourg Parliament in the meantime and are now in force.

Summary of the new regime

As it was mentioned in our previous report on this, the minimum tax is levied on entities subject to Corporate Income Tax, the financial assets (including transferable securities, receivables, and bank deposits) of which exceed 90% of their total assets. Furthermore a progressive flat tax is to be introduced for any collective entities subject to Corporate Income Tax other than those detailed above.

The changes from what was in effect before 1/1/2013 can be summarized in to an increase of the Solidarity Surcharge from 5 to 7% as well as an increase in the minimum flat tax applicable to all collective entities subject to Corporate Income Tax from EUR1,500 to EUR3,000 per annum. Combining the two increases together would result to a minimum annual burden of EUR3,210.

You can find more about the provisions related to the above mentioned changes, including the conditions for their application and what applies to companies not meeting these conditions, on our previous post on this issue.

Restructuring Solution

An effective restructuring solution, which was suggest in our previous post in order to avoid incurring the extra tax burden to be introduced in Luxembourg as from 2013 is the transfer of the legal seat (redomiciliation) of Luxembourg companies to Cyprus.

So far, the tax legislation in Luxembourg was hindering the popularity of redomiciling companies out of Luxembourg (to any place in the world and not just Cyprus) because it provided for deemed realization of the assets and liabilities of  the transferring company, effectively considering the company as being liquidated.  The only exception to this provision is when the assets and liabilities of an emigrated company can be allocated to a permanent establishment in Luxembourg. In such a case, the book value of these assets and liabilities can be maintained for Luxembourg tax purposes.

On 22 February 2013, and as a result of a European Court of Justice decision, the Luxembourg Government Council adopted an amendment to the exit tax provisions on capital gains. The ECJ decision was in the National Grid Indus case  (Case C-371/10) in which, amongst other, it was held that the freedom of establishment precludes legislation of a Member State providing for the immediate recovery at the time of transfer, of tax on unrealized capital gains relating to assets of a company transferring its place of effective management to another Member State.

The amendment provides that the redomiciling company may request a deferral of the tax due on the capital gains, without any obligation to provide a guarantee to obtain the tax deferral.

The above amendment is expected to open the way for companies, which wish to move out of Luxembourg by transferring their legal seat, which has always been a very efficient and convenient restructuring solution. Together with the spreading of the news about the increase in minimum taxes (a lot of people have heard about the proposed provisions but they only currently become aware that they are already in force), this is expected to create a great deal of reorganization activity.

How we can help

Fiducenter has extensive experience in redomiciliations from Luxembourg to Cyprus and it would not be an exaggeration to say that in Cyprus we have led the way for such operations involving Luxembourg. We can take care of the whole procedure both in Luxembourg and in Cyprus, or if your domiciliation agents in Luxembourg can offer this service, we can handle the Cypriot part of the procedure only.

We will of course be glad to manage the company once its legal seat is transferred to Cyprus as we provide the whole range of related services, including corporate, fiduciary, accounting and tax advice and administration, etc. We have even come up with an attractive proposition with regards to the pricing of the operation in order to make the decision to transfer out of Luxembourg as cost-neutral as possible.

We would be glad to discuss any cases you might have in mind and to provide you with any further information or clarification you may require.

George Savvides




Phone: 357 25 50 40 00 Fax: 357 25 50 41 00

Fiducenter (Cyprus) Ltd

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No part of this publication may be reproduced, sorted in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written consent of Fiducenter (Cyprus) Ltd.

The information provided in this publication does not constitute legal, tax or investment advice and no responsibility is accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it.


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