LUXEMBOURG Law and Practice Contributed by: Romain Tiffon and Marie Bentley, ATOZ Tax Advisers
another undertaking, risks relating to claims, other assets or obligations assumed by third parties or inherent to all or part of the activities of third parties and issues securities whose value or yield depends on such risks) are transparent for tax purposes and thus are not subject to taxation on their income. They are also not subject to subscription tax. Some other types of investment vehicles are fully subject to tax on their income as any other fully tax - able Luxembourg corporate entity, but either benefit from certain exemptions on certain income categories ( sociétés d’investissement en capital à risque (SIC - ARs)) or are subject to specific rules when computing their tax base (SVs in corporate form): • an investment company in risk capital (SICAR), designed for private equity and venture capital investments, must invest its assets in securities representing risk capital; and • an SV established in corporate form (same activity as a securitisation fund) is fully subject to Luxem - bourg corporate taxation on its income, like any other fully taxable entity, but benefits from specific rules – particularly dedicated deductions – when determining its taxable base. Finally, the reserved alternative investment fund (RAIF) blends the features and structuring flexibility of both the regulated Luxembourg SIF and the SICAR – quali - fying as an AIF managed by an authorised AIFM – while distinguishing itself by not requiring prior approval from the Luxembourg financial regulator, as it must be managed by a fully authorised AIFM. For tax pur - poses, depending on the activity they perform, RAIFs are subject to either the same income tax exemption regime as SIFs (and subscription tax) or the same tax regime as SICARs. Specific Transaction Types Luxembourg’s tax framework also contains multiple incentives tailored to specific transaction types. In addition to the IP regime described in 2.2 Technol- ogy Investments and the participation exemption in 6.3 Dividends From Foreign Subsidiaries , the law on 19 December 2023 introduced a major reform of the investment tax credit (ITC) framework, effective as from the 2024 tax year. This framework aims to accel -
erate the digital transformation as well as the ecologi - cal and energy transition of Luxembourg businesses and to strengthen the competitiveness of Luxembourg companies, by stimulating more innovation, while promoting the development of knowledge and skills in digital transformation and ecological and energy transition. The framework provides for the following. • A global ITC of 12% based on the acquisition price or cost price of investments made during a financial year, granted on investments in tangible depreciable assets other than buildings, livestock and mineral and fossil deposits, and for the acqui - sition of software. (a) For investments in fixed assets approved to be eligible for the special depreciation referred to in Article 32bis of the LITL, the tax credit is increased to 14%. • A specific income tax credit for investments and operating expenses linked to the digital transfor - mation or ecological and energy transition. The rate of the new tax credit is either 18% or 6% depend - ing on whether investments are made in tangible depreciable assets or not. 2.4 Loss Relief Tax losses may be deducted as special expenses, provided they arise from proper accounting records and are used solely by the Luxembourg taxpayer that originally incurred them. As a result, losses cannot be transferred to shareholders; and, following the acquisition of a company, the ability to carry forward existing losses may be limited – particularly where the acquired company was a shelf entity or where the activity that generated those losses has ceased or fundamentally changed. Luxembourg applies different carry forward rules depending on when the losses were incurred. Losses generated up to the fiscal year ending 31 December 2016 can be carried forward without time limitation, whereas those realised from 2017 onwards may only be carried forward for a maximum of 17 tax years. Carrying back of losses is not permitted. Specific rules apply when a company opts for fiscal integration. Losses realised prior to entering a tax
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