The law of 8 March 2017 (published on 20 March 2017) (the “Law”) introduces new provisions regarding residence permits in Luxembourg and forms an integral part of the incentive policy of Luxembourg towards high-net-worth (“HNW”) individual investor citizens from third countries (i.e. outside the EU, the EEA and Switzerland).
The main focus of the Law is a new residence permit for third-country HNW investors.
This measure, a Luxembourg creation, aims at encouraging and developing investment activities in Luxembourg and diversifying the Luxembourg economy. From now on, a residence permit for investors will be granted for a period of three years (renewable) under certain conditions (excluding proof of appropriate housing).
|| Additional conditions
|Investment of at least EUR 500,000 in an existing company.
||Company performing trade, handcrafted or industrial activities.
||During at least 5 years.
|Investment of at least EUR 500,000 in a new company (to be created) performing trade, handcrafted or industrial activities.
||Commit to hire at least 5 employees within 3 years.
|Investment of at least EUR 3,000,000 in an investment and management structure (existing or new)
|| Maintain appropriate substance
|Investment of at least EUR 20,000,000 as a deposit in a Luxembourg financial institution.
||During at least 5 years.
It must be noted that direct and indirect investments in real estate (rental or purchase) are excluded.
The Law does not introduce any specific tax measures for HNW individuals wishing to obtain a residence permit in Luxembourg. But one should naturally assume that they would become tax residents in Luxembourg under the conditions provided for by article 2 of the Luxembourg income tax law (dated 4 December 1967). Therefore, they would then become liable to tax in Luxembourg on their worldwide income.
It will also be important to check any potential dual tax residency issues that may arise from their substantial ties with their country of origin (or any other country), leading to potential double taxation,
which could be resolved under a relevant double tax treaty, if any (for information purposes, Luxembourg currently has 81 double tax treaties in force).
As newly established Luxembourg tax residents, these HNW individuals would be entitled to the following Luxembourg tax measure benefits (non-exhaustive list):
- exemption from inheritance taxes in a direct line;
- absence of net wealth tax for individuals;
- flat taxation on some savings income.
On the very particular aspect of the transfer of their residency to Luxembourg by virtue of obtaining a residence permit, attention should be paid to the potential application of an “exit” taxation in their country of origin. From a Luxembourg standpoint, they may benefit from the “step up” mechanism for new tax residents introduced by the law dated 18 December 2015. Under this mechanism, they would be entitled to
re-evaluate the acquisition price of substantial shareholdings at their estimated realizable value as at the date of arrival (i.e. on obtaining the status of tax resident) in the Grand Duchy of Luxembourg.
The following measures of the Law are also worth mentioning:
- Creation of an original mechanism for business continuity in order to enable third-country companies to continue their activity in the Luxembourg territory in the event of a major incident in their home
country. A back-up centre has been created in Luxembourg containing the companies’ data. Potential tax implications should also be “monitored”.
- Removal of the 12-month waiting time for an employee to be able to bring his/her family to Luxembourg (based on the model of the EU Blue Card owners).
- Finally, it is now possible for third-country students to directly apply for a job in Luxembourg after their postgraduate studies (until now they were obliged to apply from their home country).