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Normal NWT and Minimum NWT
Luxembourg resident corporations (e.g. S.A., S.à r.l., S.C.A., etc.) as well as Luxembourg PE of non-resident entities are subject to a “Normal” NWT corresponding to 0.5% of their “unitary value”. The latter is set on 1 January each year (based on the annual account of the previous year) and determined by the difference between the assets and the liabilities towards third parties, with some exemptions and adjustments.
Please note that Luxembourg resident corporations among other entities are also subject to a Minimum NWT, which is determined based on the last balance sheet of the previous year. The latter is reduced by the Corporate Income Tax (CIT) of the previous year.
Companies are then liable to the highest amount between the adjusted Minimum NWT and the Normal NWT. In case the Normal NWT is due, the latter could be reduced under conditions.
Conditions for the reduction of the Normal NWT
- The reduction of the Normal NWT (e.g. 2021) is limited to the CIT of the previous year (e.g. 2020) normally before deduction of the possible tax credits.
- The NWT due after reduction cannot be lower than the adjusted Minimum NWT of the year (e.g. 2021).
- An unavailable NWT reserve (corresponding to 5 times the Normal NWT reduced) has to be recorded in the annual accounts of the year (e.g. 2021) and has to be maintained during 5 years (e.g. until 1 January 2026 in case of calendar accounting years).
- The NWT reduction has to be requested in the corporate tax return of the previous year (e.g. 2020).
Grant Thornton Luxembourg can assist you to optimise the NWT position of your Company.
The allocation to the 5-year reserve has normally to be decided by the Ordinary General Meeting (OGM) of shareholders (e.g. Normal NWT reduction for year 2021 has to be recorded in the annual accounts 2021 but should be decided by the OGM held in year 2021 approving the annual accounts 2020 and allocating the profit 2020).
If the OGM had already been held, a NWT reserve can still be allocated by the board of directors and/or an extraordinary general meeting of shareholders. However, such allocation to the NWT reserve has to be documented before the end of the year for which the reduction is requested (i.e. before 31 December 2021 for the reduction of NWT 2021, in case of calendar accounting years).
The NWT reserve can be funded either by the allocation of profit of the previous year, or, in case of insufficient profit, by the allocation of available reserves previously constituted.
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For more information, please contact our experts:
- Jean-Nicolas Bourtembourg - Partner, Head of Tax & Transfer Pricing
- Jean-Michel Hamelle - Partner, International Tax
- Mélina Rondeux - Partner, International Tax