A tax reform introduced in Luxembourg in 2002 involves major cuts in taxation on individuals and companies, despite trade union criticism. Luxembourg now claims to have Europe's lowest taxation burden on individuals, and the second lowest on companies.
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A tax reform introduced in Luxembourg in 2002 involves major cuts in taxation on individuals and companies, despite trade union criticism. Luxembourg now claims to have Europe's lowest taxation burden on individuals, and the second lowest on companies.
On 19 December 2001, the Chamber of Deputies voted through the second stage of a tax reform that will provide substantial reductions in taxation for both individuals and enterprises from 2002 onwards.
As far as individuals are concerned, this reform, which was announced by the government in late 2000 (LU0010147F), mostly involves a cut in the basic income tax rate from 14% to 8%, and a reduction in the maximum rate from 42% to 38%. For example, a married couple with two children, earning EUR 3,600 per month ,will pay EUR 1,884 less income tax per year in 2002 than in 2001. The main change for enterprises is a reduction in the local government income tax rate from 30% to 22%.
In the view of the parties in the parliamentary majority - the Social Christian Party (Chrëschtlech Sozial Vollekspartei, CSV) and the Democratic Party (Demokratesch Partei, DP) - the reform is 'fair and necessary'. However, they state that an attractive fiscal regime alone is not enough to guarantee the country's future as a business location. They believe that Luxembourg will also attract foreign investors because of its industrial peace and multilingualism.
The largest opposition party, the Luxembourg Socialist Party (Lëtzebuergesch Sozialistesch Arbechterpartei, LSAP) voted for the reform, viewing it as a good compromise with the alternatives that it had itself proposed.
The only major censure from the other opposition parties used the arguments contained in criticisms previously formulated by the Luxembourg Confederation of Independent Trade Unions (Onofhängege Gewerkschafts-Bond Lëtzebuerg, OGB-L) and the Luxembourg Confederation of Christian Trade Unions (Lëtzebuerger Chrëschtleche Gewerkschafts-Bond, LCGB), which had demanded measures to distribute the fruits of growth more equitably. The idea put forward, among others, by the unions, to introduce a 'negative tax' for the benefit of those whose income is such that they do not pay income tax, was not followed up.
In the European 'league table' of low taxation, Luxembourg is now said to be first in terms of taxation on individuals, and second in terms of taxation on enterprises.
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