Both Luxembourg and Malta have announced potential changes to their tax regimes.

Luxembourg

On 5 May 2010, the Luxembourg Prime Minister proposed a number of tax measures for individuals and corpora-tions aimed at balancing Luxembourg’s budget deficit and public debt, which are amongst the lowest within the European Union.

The main proposals would be applicable from 1 January 2010 until the end of 2012, subject to ratification by the Luxembourg Parliament, and include:

Corporations

• Corporate income tax will remain at the current rate of 21% but, due to an increase of the solidarity contribution/unemployment surcharge of 1%, the combined rate will increase to 22.05%
• A minimum lump taxation for certain companies in Luxembourg will be introduced (e.g. holding company/Soparfi), expected to be between €2,000 and €3,000. 
• Substantial bonuses including bonuses payable at the end of employment may no longer be treated as a tax deductible expense for the company paying the bonuses.
  

Individuals

• An additional top marginal income tax rate of 39% may be introduced.
• Solidarity tax could be increased from 2.5% to 4% (for taxpayers earning more than EUR 300,000 per year the rate is 6%).
• Interest relief on (new) mortgages for primary residences could be abolished.
  

Oncke Kipperman, Director of STM’s International Tax Department, said, "The proposed tax measures make sense in light of the recent economic crisis and the impact it had on Luxembourg (albeit limited), as an international financial centre.

"I envisage that once the economy has sufficiently recovered, many of the proposed tax measures will be abolished and the previously announced tax amendments, such as the proposed reduction in the corporate tax rate, may be finally implemented."

The proposed tax measures are not expected to have a negative impact on Luxembourg as an international financial centre.

Malta – enhancement of tax rules

In April 2010, the Maltese Parliament approved various amendments to Malta’s tax laws which are expected to further enhance Malta’s position as a location for international companies.

The main amendments include:

• less restrictive conditions for the participation exemption to apply as now only two of the three conditions need to be satisfied
• income and gains from previously non-qualifying subsidiaries may now possibly benefit from the Maltese participation exemption
• as from 1 January 2009, it is possible to claim a step-up in the tax base cost of non-Maltese assets without Maltese tax implications. Furthermore, the revaluation of these assets, from historic to fair market value, should reduce or avoid Maltese taxation on capital gains realized due to the later disposal of these assets.

Revaluation of non-Maltese assets is possible for individuals re-locating their residence and/or domicile to Malta, and companies relocating to Malta as a result from a merger in accordance with the EU Merger Directive.

Darren Anton, Tax Manager at STM Fidecs Advisory Ltd., the international tax division of STM Group Plc., stated, "The amendments improve Malta’s position as an international financial centre and could offer various interesting tax planning opportunities for international operating companies."

Read the full article for more information or contact us to discuss any of these points.