On November 10, 2023, the Luxembourg Constitutional Court declared the minimum net wealth tax (“NWT”) applicable to certain entities unconstitutional.

Paragraph 8 (2) a) of the Luxembourg wealth tax law (Vermögensteuergesetz) currently states that Financial Entities (certain entities subject to NWT with more than 90% of their assets in financial assets such as financial fixed assets, receivables from affiliated companies, securities…) whose total balance sheet exceeds the threshold of EUR 350,000 are subject to a minimum NWT of EUR 4,815. On the other hand, Financial Entities whose total balance sheet does not exceed this threshold and non-Financial Entities are subject to a progressive minimum NWT. Basically, Financial Entities whose total balance sheet is EUR 350,000 or less are subject to a lower minimum NWT (i.e. EUR 535) than those whose total balance sheet exceeds this threshold (i.e. EUR 4,815).

This difference of tax treatment between these two taxpayers in a comparable situation (since they are both Financial Entities) thus constitutes an infringement of the constitutional principles of equality and tax contribution according to the taxpayer’s ability to pay. This threshold of EUR 350,000 is indeed, according to the Court, not based on objective disparities, rationally justified, adequate and proportionate to its purpose.

What’s next?

Since in such a case the most favourable rule should apply, and pending an amendment to the law, Financial Entities whose total balance sheet ranges between EUR 350,000 and EUR 2,000,000 will be subject to the progressive minimum NWT, i.e. EUR 1,605. Financial Entities whose total balance sheet exceeds EUR 2,000,000 will remain subject to a EUR 4,815 minimum NWT, as it was the case before this decision, as well as Financial Entities whose balance sheet is below EUR 350,000, which will remain subject to a minimum NWT of EUR 535.

For more information or assistance on this topic, you may reach out to our tax team.