By Frédéric Scholtus, Associate Partner, Tax Advisory, KPMG Luxembourg.
Although the changes for 2018 are not as significant as those for 2017, there are certainly several updates you should be aware of. Some of these changes were part of last year’s tax reform, while others were introduced at the end of 2017.
This article highlights the most relevant changes. KPMG has also developed a Luxembourg Tax Calculator to help taxpayers estimate their taxes for 2017 and 2018. It also provides tips on optimising allowable tax deductions.
In this article, we’ll cover:
• Tax card 2018
• Taxation of married non-residents
• Favourable tax rate for certain real estate capital gains
• Exchange of information process
• Taxation of stock option plans
• Inheritance tax exemption also for couples without children
Tax card 2018
As of 2018, married taxpayers have three options with respect to their taxation:
• Joint taxation: the total income of the household is subject to the favourable tax rate of tax class 2.
• Fully individual taxation: each income is allocated to each spouse individually and deductions are equally split between both spouses.
• Individual taxation with reallocation of income: the total income of the household is, by default, allocated equally between spouses without taking into account the level of their individual income. A different allocation can be requested by the taxpayers.
If no tax rate is provided, or the personalised tax rate is incorrect, an application should be submitted to the tax office. Such applications can be submitted online or in writing. The advantage of submitting online is that it will be processed faster. Ultimately, the application should be submitted before 31 March 2019.
Taxation of non-residents of Luxembourg 
By default, non-resident taxpayers will be taxed as single taxpayers in tax class 1 during the tax year (i.e. no more under the more favourable tax classes 1A or 2). However, non-resident taxpayers can still qualify for tax class 2 if the part of their worldwide household income that is taxable in Luxembourg meets certain thresholds:
• 90% threshold: if one spouse is taxable in Luxembourg on at least 90% of his/her annual worldwide income, both spouses can still benefit from tax class 2.
For this 90% threshold, the first 50 days worked outside Luxembourg are deemed to be taxable in Luxembourg. For the calculation of the non-Luxembourg workdays, those first 50 days are exempted in Luxembourg.
• €13,000 threshold: if none of the thresholds above are met, tax class 2 would still be available if the annual taxable income not subject to Luxembourg taxation is less than €13,000.
• Alternative threshold for Belgian residents: taxpayers may be granted tax class 2 if more than 50% of their household’s professional income is taxable in Luxembourg.
If the taxpayer is eligible for tax class 2 based on the above, and this is to be included in the 2018 tax card, an application should have been submitted to the tax office before 31 October 2017. If no application was submitted, the taxpayer can still benefit from tax class 2 through the filing of a Luxembourg tax return. The ultimate filing deadline for the 2018 tax return is 31 March 2019
The additional threshold of “50 days outside Luxembourg” is good news, as it will likely allow more cross-border workers to maintain the benefit of tax class 2. However, applying for tax class 2 also means that the household’s worldwide income will need to be declared in Luxembourg and will be taken into account to calculate the effective tax rate applicable to the Luxembourg taxable income. This may increase the household’s total tax liability.
The tax authorities have recently clarified that the 2018 wage tax may be temporarily operated based on the 2017 tax card for employees and pension-earners, who are likely to receive their 2018 wage tax card within the first two months of 2018.
Upon receipt of a valid 2018 tax card, employers/pension authorities will be able to operate the withholding tax according to the new tax card, and make any necessary retrospective adjustments.
Favourable tax rate for certain real estate capital gains
To further increase the supply of building land and housing, the favourable tax regime for certain real estate capital gains has been be extended by one year. Capital gains arising from the disposal of real estate will be taxable at ¼ of the taxpayer’s overall effective tax rate, if the sale occurs (or occurred) between 1 July 2016 and 31 December 2018. This favourable regime applies to capital gains on sales of real estate that (i) is a secondary home or property (i.e. not the taxpayer’s main residence) and (ii) has been held by the taxpayer for more than two years.
Exchange of information process
The proposed amendment of the Luxembourg law regarding the process for the exchange of information upon request has been removed from the budget bill and will be dealt with in a new, separate draft law. The State Council argued that the budget bill went beyond the requirements set by the Court of Justice of the European Union in the judgement on the Berlioz case. 
Taxation of stock option plans 
Circular n°104/2, issued by the Luxembourg tax authorities on 29 November 2017, provides for changes in the taxation of transferable stock options/warrants as well as in the reporting obligations of all stock option schemes; it also clarifies to some extent the scope of application of this specific tax regime.
The main amendments include:
- As from 1 January 2018, the taxable benefit of transferable stock options/warrants (that are not listed nor valued according to a recognised financial method) is assessed at 30% of the value of the underlying unit of an option/warrant on the grant date.
- The reasonable conditions applicable to this tax treatment are now included in the tax circular. This provides more transparency and certainty.
- If transferable stock options are granted instead of an employment termination payment (whether it is a legal, contractual, transactional, or judicial severance payment), the benefit cannot be assessed on a lump-sum valuation basis, but must be taxed on the full purchase price of these options.
- The tax circular confirms that pooled stock option schemes, i.e. schemes gathering employees of different companies, are allowed.
- Strict deadlines are imposed on the employer’s reporting obligation to the wage tax office. Not respecting these deadlines will trigger the exclusion of the benefit of the stock option regime as provided by the circular for 2018 and beyond.
For plans implemented from 2018 onwards: the detailed report must be made by the employer at the time the taxable event occurs (i.e. at the exercise date of the options in cases of non-transferable options / at the grant date of the options in cases of transferable options/warrants), and not at the time the scheme is implemented. Prior notification of the plan to the tax authorities does not exist anymore.
If the employer fails to make the report at the time of the taxable event, the tax authorities will:
- tax the full purchase price of the options (in cases of transferable options/warrants); and
- not apply any discount (from 5 to 20%) in cases of non-transferable options.
Benefits taxable at the same date can be put in the same report as long as they belong to the same plan.
In light of the new rules, employers will need to assess (i) the scope and extent of stock options awarded and (ii) their workforce in receipt of such incentive compensation. They will also need to revise their processes and procedures because of the new information that must be collected and the detailed reports that should be made electronically.
Inheritance tax: exemption for couples without children
The exemption from inheritance tax—previously applicable only for spouses or partners with at least one child—has been extended to spouses or partners without common children or other descendants.
 Examples and further details can be found in the KPMG Tax Alert: https://home.kpmg.com/lu/en/home/insights/2017/10/update-luxembourg-2018-tax-reform.html
 Further details in the KPMG Tax Alert: https://home.kpmg.com/lu/en/home/insights/2017/05/taxpayer-friendly-cjeu-decision-exchange-information.html
 Further details can be found in the KPMG Tax Alert: https://home.kpmg.com/lu/en/home/insights/2017/12/taxation-of-stock-option-warrant-schemes.html
Publié le 10 janvier 2018