Constitutional Court finds minimum net wealth tax regime applicable to collective entities partially unconstitutional

The Luxembourg Constitutional Court ruled in a decision issued on 10 November 2023 (case n° 185, in French only) that part of the minimum net wealth tax regime, applicable to collective entities, is contrary to the constitutional principle of equal treatment because the threshold of EUR 350,000 does not have a rational basis.

Background and court’s reasoning

The Luxembourg Administrative Tribunal had referred the question of the constitutionality of the minimum net wealth tax regime to the Constitutional Court on 19 April 2023 (case n° 45910).

Based on section 8(2)(a) of the wealth tax law of 16 October 1934 (VStG), collective entities that have qualified holdings and financing assets (i.e., fixed financial assets, transferable securities, and cash at bank) exceeding both 90% of their total balance sheet and the amount of EUR 350,000 generally are liable to a minimum net wealth tax of EUR 4,815.

The Constitutional Court held that this rule violates the constitutional principle of equal treatment in that the threshold of EUR 350,000 does not have a rational basis. The court based its decision both on article 10bis of the Luxembourg constitution applicable before 1 July 2023 as well as article 15 of the revised constitution applicable since then. It further held that the more favorable rule must be applied, i.e., the minimum net wealth tax should be EUR 1,605 in this case (instead of EUR 4,815 previously).

Impact of the decision and next steps

This decision affects collective entities with (i) a total balance sheet greater than EUR 350,000 and up to EUR 2 million, and (ii) qualified holdings and financing assets (i.e., fixed financial assets, transferable securities, and cash at bank) exceeding 90% of their total balance sheet. The minimum net wealth tax of EUR 1,605 should apply (instead of EUR 4,815). Concerned taxpayers should carefully review their individual situation to determine how their past tax position could be positively affected by this case. They also should monitor whether the Luxembourg tax authorities will apply the new amount in future tax assessments.

This decision does not invalidate the other aspects of the net wealth tax regime. Therefore, all other collective entities subject to the minimum net wealth tax continue to be liable to the tax on the same basis as before the decision.

Legislative reform should be enacted to amend the parts of the net wealth tax law deemed unconstitutional. In this context, the legislature potentially could change the entire regime in the future.

If you have any questions or wish to explore how Deloitte Luxembourg can assist you regarding this topic, please get in touch with us.