Modernising the tax framework to keep the Grand Duchy competitive


In the proposals to political parties published by the ABBL for the 2023 parliamentary elections, UEL Director Jean-Paul Olinger stresses the importance of modernising the tax framework.

What are the main challenges facing the Luxembourg financial center?

Our country’s future prosperity depends on Luxembourg’s ability to attract, train and mobilise the talent of tomorrow, whether it’s the individual talent of managers, employees and self-employed people, or the collective talent of companies.

Luxembourg is currently facing a number of challenges, such as the talent shortage, international competitiveness, and the digital and environmental transition. Taxation is one of the levers for meeting these challenges. Modernisation of the tax framework is therefore imperative to maintain the country’s competitiveness and attractiveness.

UEL and its members, led by the ABBL, are actively working with all those committed to the country’s future, to make proposals, particularly at this pivotal time, for an attractive, sustainable and prosperous economy for the country and its talents.

How can taxation play a role in the country’s economic growth?

To meet these challenges, we urgently need to give impetus to an ambitious tax reform for both companies and their employees, as part of an overall strategy to give the country the means to achieve its goals.

Adapting tax policy in the short and medium term is an essential lever for supporting a prosperous and inclusive economy, and thus individual and collective talent. Indeed, economic growth depends on maintaining our tax revenues, which in turn depends on the country’s competitiveness for all players in economic life.

That’s why it’s vital to take immediate action and send out a clear signal of the country’s attractiveness, both locally and internationally. This means implementing a far-reaching tax reform based on three pillars: attracting and retaining individual talent, supporting businesses in their development, and increasing legal certainty and administrative simplification.

More concretely, what tax measures does Luxembourg need to attract and retain individual talent?

One of Luxembourg’s priorities is to attract, train and mobilise the talents of tomorrow in order to respond to the unprecedented tension in the employment market. It is therefore crucial to act on the lever of employee training, while enabling companies to attract the new talent they will need in the future through targeted tax measures.

Among other things, the tax regimes for profit-sharing bonuses, impatriates and supplementary pensions need to be improved and extended to better meet market expectations and the “war for talent”.

Finally, the issue of housing remains central to the challenge of labour shortages: the high cost and lack of housing contribute to the recruitment problem we are experiencing. Responding to this crisis requires a holistic approach and fundamental reform in many areas. In the meantime, consideration could be given to introducing a preferential tax regime enabling employers to pay their employees a tax-free housing mobility allowance. The aim of such a bonus is to enable young workers to benefit from tax-free financial assistance from their employer to help them find accommodation close to their employer and/or pay part of their transport costs as part of environmentally-friendly mobility.

What are you proposing to maintain the international competitiveness of Luxembourg companies?

In addition to the war for talent, the competitiveness of Luxembourg and its businesses also depends on controlling the overall tax cost of investment.

It is recognised that businesses play an essential role in job creation, innovation and, more generally, the economic dynamism of a country. However, innovation and digital and environmental transition mean raising funds, investing in infrastructure and skills, while remaining profitable in order to reinvest in the local economy, which poses real difficulties for businesses in a world that is as competitive as it is globalised.

It is therefore important to use taxation as a lever to stimulate business investment, particularly in environmental and digital transition, but also in research and development, which generate substantial costs for businesses. In this respect, we welcome the bill recently tabled by the Government to modernise the investment tax credit, with a view to extending it to investments and expenditure made by Luxembourg companies as part of the digital transformation or the ecological and energy transition. This is a first step in the right direction.

Other aspects, such as lowering the corporate tax rate to bring it into line with the average European rate, should also be taken into consideration to maintain our country’s attractiveness.

Finally, we cannot ignore the specific needs of start-ups and SMEs, which are an integral part of Luxembourg’s economic structure and full players in a prosperous and innovative economy. In this respect, it would be appropriate to support the financing and development of these companies by introducing a tax advantage for individuals investing cash in start-ups and SMEs.

Read the French document “Les 6 leviers pour un secteur bancaire plus stable, durable & compétitif” published by the ABBL.