A new Circular concerning the Luxembourg liquidation procedure

ACD published a new Circular concerning the Luxembourg simplified liquidation procedure under art. 1865bis Civil Code

On 19th July 2024, the ACD has published a new Circular (« Circulaire du directeur des contributions, L.I.R., n. 170/1. 170bis/1, I.C.C. n.44, I.Fort. n. 55 ») regarding the tax treatment of dissolution without liquidation under art. 1865bis of the Luxembourg Civil Code («Liquidation simplifiée»). Accordingly, a Luxembourg entity fully owned by a sole shareholder may proceed to the dissolution of the company by transferring of all assets and liabilities by way of universal transfer to the sole shareholder.

In the text of the New Circular, the ACD has provided the following considerations:

• Corporate income Tax (“CIT”): The Circular has specified that for CIT purposes, a simplified liquidation can be assimilated de facto to a fiscally neutral merger under art.170 (1) of the LITL. This is an exception to the general rule that liquidations entail the realisation at fair market value of the company’s assets (and taxation of any latent capital gains). However, to benefit from the application of the tax neutral merger regime, it is still necessary to meet all the conditions foreseen by art.170 (2) LITL. The same considerations would also apply to cross-border liquidations, where the sole shareholder is located within the EU. The Circular however confirms that “standard liquidations” under the so-called 3-steps procedure are still to be treated as a deemed disposal of the company’s assets at fair market value for Luxembourg tax purposes.

• Municipal Business Tax (“MBT”): for MBT purposes, the same rules as for CIT would be follow (i.e., possibility to apply a tax neutral merger).

• Net Wealth Tax (“NWT”): the Circular provides some clarifications with respect to the carrying over of the NWT reserve. In case of a simplified liquidation, to the extent that the entity benefiting from the transfer of the assets continues the NWT reserve in view of fulfilling the five-year period condition, the simplified liquidation has no impact on the NWT due by the liquidating entity. However, it should be noted that if the NWT reduction is requested for the period during which the simplified liquidation occurs, the NWT reserve should be constituted in the tax year preceding the one for which the reduction is asked. The Circular also confirms that in case of standard liquidations, the company will remain liable for 1/5th of the NWT reserve due at the closing of the liquidation, as it is already the case today.

The Circular provides welcome confirmations and favourable news on the CIT, MBT and NWT implications applicable to simplified liquidations in Luxembourg.