Agefi Luxembourg - février 2025

AGEFI Luxembourg 12 Février 2025 Economie / Banques By Adam KUNDRAT , Manager & Nicolas DEVERGNE , Partner, Deloitte Luxembourg S ince 2024, Luxembourg’s newin- vestment tax credit framework has provided a boost to invest- ments indigital andgreenprojects, re- flecting theGovernment’s keen interest to stimulating themarket andwide- ning its economic incentives. Some companies have al- ready applied, but this op- portunity couldbe interesting formany. This modernization of the Lux- embourg investment tax credit framework aligns with the Grand Duchy’s commitments to climate change (e.g., in linewith theEu- ropeanUnion’s climateneutralityby2050 initiative), and enhances the local market’s competitiveness. The first year following the reform’s implementa- tion allows us to draw practical takeaways for tax- payers and reiterate the opportunities for the Luxembourg companies. Broadened scope andmaximized rate As of 1 January 2024, the Luxembourg investment tax credit regime consists of twomain components. On one hand, there is a simplified tax credit for overall investments, with the rate increasing from 8% to 12%, regardless of the amount invested dur- ing the relevant financial year (i.e., the 150,000 € threshold no longer applies). On the other hand, the legislation offers a newly introduced tax credit for investments and operational expenses in- curred during an eligible taxpayer’s digital trans- formation or ecological and energy transition. For these projects, the applicable rate amounts to 18% without any thresholds. Criteria for digital and ecological transformation and energy projects Unlike the normal tax credit for overall investments that applies togiveneligible assets, the legislator has made clear that thenewly introducedregime targets entire projects focusedon digital transformation or ecological and energy transition . The law defines digitaltransformation astheachievementofinnova- tive processes or organizational innovation through the implementation and use of digital technologies, while meeting one of the objectives listed in the law (such as, the introduction of an innovative economic model, including a circular economy, significant transformationofthecompany’sorganizationalstruc- ture to create new value for its stakeholders, or en- hancement of cybersecurity). In other words, the taxpayer’s project must have a holistic (or very significant) impact, allowing the company to integrate technologies to rethink its opera- tional (focusing on product/service) and/or organizational (focusing on internal operations or relationships with other stakeholders) model. Therefore, the implementation of a simple digitiza- tion or digitalization process in daily processes – suchas creationof anappwhere this is currentmar- ket practice –will not be enough tomeet the defini- tionof digital transformation for thepurposes of the modernized investment tax credit. An example of truedigital transformationwouldbe the implemen- tation of artificial intelligence (AI) or data analytics to optimize risk management and fraud detection for as long as it has not become cur- rent market practice. Ecological and energy transition is defined as any change that reduces the environmental impact, ranging from energy production or con- sumption to the use of resources. It must involve a significant technical or equipment changes and should aim to achieve, among other goals, a 20% improvement in energyefficiencyof a production process, a 40% reduction in CO2 emissions through decarbonisa- tion, theproductionor storage of energy from non-fossil renewable sources, or the implementationof processes that ex- tend the lifecycle of products through reuse. It must be noted that the modernization law specifi- callyexcludesinvestmentsandoperatingexpensesin- curred to solely complywith its obligations deriving from any new legislation regarding environmental protection, aswell as any legal andreglementarydis- positions applicable to commercial and industrial companies.However, projects thatwouldgo consid- erably beyond the regulatory requirements may still qualify,aspertherecentFAQpublishedonthepublic websiteGuichet.lu.ThisFAQalsoanswersafewprac- tical queries Luxembourg taxpayers had. Procedural complexity Tobenefit fromthenewincentive, the taxpayermust request and be granted an ex ante attestation of eligi- bility fromtheMinistryof Economy, confirming that the project qualifies for the tax credit.After the endof each coveredfinancial year, theMinistryof theEcon- omywillissueacertificateconfirmingthattheinvest- ments made, and expenses incurred, are legitimate and that theymeet the objectives of the digital trans- formationortheecologicalandenergytransition.The taxpayermustattachthiscertificatetotheirtaxreturn when claiming the tax credit. The attestation of eligi- bility form, available onGuichet.lu, that the taxpayer must in essence prepare aworked-out feasibility and implementation plan. To complete the form, the ap- plicant must indicate different phases of the project, plannedinvestmentsandexpenses,aswellasprovide details about the involved staff. The project descrip- tion,alongwiththerelevantinnovationandtechnolo- gies used, must be further reflected in the eligibility request form. Thus, it is important for the taxpayer to properlyassessagivenproject’spotentialforthemod- ernizedinvestmenttaxcreditbeforepreparingthere- quired form. Regarding the budget, it seems that the Ministry considers the indicated budget as themaxi- mum and, consequently, will not accept unjustified overrunswhenanalyzingexpensesforthepurposeof issuing the yearly authenticity certificate. Another important feature to consider is timing. The modernized regime foresees a periodof applicability of three financial years. The eligibility form suggests thatprojectsinitiatedbeforetheadoptionofthemod- ernization laware likely tobenefit fromthis incentive for their expenses incurred after the filing of the re- quired form. However, it is important to underline that the tax credit applies throughout three financial, andnotcalendaryears.Therefore,thetaxpayershould pay attention to the timing of its eligibility request. Conclusion The modernized investment tax credit is rendered particularly attractive now that it encompasses oper- ational expenses, such as staff and training expenses, aswellasexpendituresfordiagnosticorexternalcon- sultingrelatedtoqualifyingdigitalandgreenprojects. It is time for thefinance and tax leaders of companies interested in themodernized investment tax credit to meet with their internal IT counterparts and identify opportunities for qualifying projects. Given the spe- cific requirements of the modernized regime, they should work together — with the right assistance fromexperts—to prepare thorough documentation thatdemonstratestheirprojects’eligibilityforthisnew incentive and ensures ongoing yearly compliance. While this may involve some effort, it may be a rela- tively small burden considering all the potential ben- efits thismodernized tax credit brings. Deloitte Luxembourg’s Global Innovation and Investment Incentives ServiceTeam,composedofspecialistsinthetopiccanhelpyoudetermine your eligibility for the benefits of the new investment tax credit. A year in review: Luxembourg Investment Tax Credit and its potential opportunities Opinion - By Bruno COLMANT, Ph.D., Member of the RoyalAcademy of Belgium T he European Central Bank (ECB) is ending its Euro- pean debt purchase pro- gram, which it has conducted for over a decade. During this period, member states of the eurozone benefi- ted from exceptionally favorable fi- nancial conditions, making it relatively easy to finance their budget deficits. However, by terminating this sup- port, the ECB is signaling a return to stricter andmore orthodoxmonetary policies. This implies that states, accustomed to monetary leniency, will now have to face the markets without a safety net. This new reality will highlight their economic and fiscal disparities. The direct consequence will be awidening interest rate differentials bet- weenmember states, reflected in the spread of credit. These spreads reveal investors' perceptions of the solvency of states, expo- sing the structural weaknesses of some and the relative strength of others. Meanwhile, an opposite scenario seems to unfold on the other side of theAtlantic. The U.S. economic policy, characterizedby a drive to stimulate growth through massive tax cuts, significantly increases the budget deficit and public debt. To support this gro- wing debt, the Federal Reserve (FED) will likely adopt an accommodative stance, refinan- cing these deficits to some extent. This diver- gence in monetary policies between the two sides of theAtlantic could lead toprofound consequences for currency markets and the global monetary balance. If this divergent trend is confirmed – although pre- dictingitsevolutionremainschallenginginanuncer- taingeopolitical context – it couldweaken the dollar and strengthen the euro. However, current signals suggest the opposite: the dollar has strengthened against the euro, defying expectations. This dollar strength is partly explained by the resilience of the U.S. economy and the attractiveness of dollar-deno- minated assets during times of global uncertainty. Nevertheless,thistrendcouldbeshort-livedifmone- tary divergences persist. In Europe, another challenge looms: financing the ambitions outlined in the Draghi report. This visio- nary document highlights the need to invest €800 billion annually to enhance European competitive- ness through innovation.However,mobilizingsuch massive capital far exceeds the current capacity of theprivate sector. European stateswould, therefore, need toplaya central role in this effort byborrowing to fund these strategic investments. Yet,with the ces- sation of debt purchases by the ECB, governments will have to find alternative solutions to refinance these loans, significantly complicating the imple- mentation of this ambitious plan. Europe is thus choosing orthodoxy and monetary normalization, marking a clear break from the expansionary policies of recent years. This choice, while aligned with principles of fiscal discipline, raises questions about its compatibility with the region's economic transformation and geopolitical adaptation needs. I have been repeating this formonths: currency, as a variable of adjustment through exchange rates, will play a central role in the coming quarters. Exchange rates are not merely economic indicators but the pulse of global geopolitical balances. The decisions of theECBand the FED,while seemingly economic, carrysignificantgeopoliticalimplicationswithconse- quences that could redefine power dynamics on a global scale. Adjustments in monetary parities will be one of the most sensitive and decisive arenas in this context of global realignment. Amajor shift in monetary paradigm L e ministre des Finan- ces, Gilles Roth, a participé aux réu- nions de l'Eurogroupe et du Conseil des Affaires économiques et financières (Ecofin) du 20 au 21 janvier 2025 à Bruxelles. Lors de l'Eurogroupe, une discus- siona eu lieusur lespriorités et les défis pour la zone euro dans le cadre du nouveau cycle politique européen. En outre, les membres de l'Eurogroupe se sont échangés sur l'utilisation de technologies innovantes dans le traitement des transactions de gros. Au cours d'undîner organisé par la présidence polonaise, les ministres des Finances de l'UE ont discutédemanière informelle sur les aspects stratégiques aux- quels l'Union est confrontée, notamment sur les considéra- tions énergétiques. Dans le cadre de la réunion du conseil Ecofin, la présidence polonaise a présenté son pro- grammede travail et ses priorités pour les six prochains mois, se concentrant avant tout sur les aspects liés à la sécurité. Les ministres des Finances ont dis- cuté d'un environnement plus compétitif pour les entreprises à l'échelle mondiale en réduisant la charge réglementaire. Dans le cadre du Semestre euro- péen 2025, le Conseil a approuvé lesrecommandationsrelativesaux premiers plans budgétaires et structurels nationaux à moyen terme. En outre, les ministres des Finances ont adopté les recom- mandationsconcernantlesdéficits excessifs pour les États membres ayant dépassé les plafonds du Pacte de stabilité et de croissance. Le Conseil a par ailleurs fait le pointavecleministredesFinances ukrainien, Sergii Marchenko, sur les répercussions économiques et financières de l'agression de la Russie contre l'Ukraine. Le ministre des Finances com- mente : «Je tiens tout d'abord à souhaiter à nos collègues polo- nais le meilleur pour leur prési- dence du Conseil de l'UE. Il est important que l'Europe resteunie et que nous continuions à coor- donner nos actions face aux grands défis actuels.» En marge des réunions, Gilles Roth a rencontré son homologue belge et Vice-Premier ministre, Vincent VanPeteghem. Source :ministèredesFinances Gilles Roth à l'Eurogroupe et au Conseil Ecofin à Bruxelles : « Il est important que l'Europe reste unie » ©Conseilde l'UE