ACQUIRING LUXEMBOURG REAL ESTATE

DIRECT PURCHASE OF REAL ESTATE

This section covers the main tax aspects of the direct purchase of real estate. In the first part, we describe the impact for resident individuals and non-resident individuals. Thereafter we describe the impact for resident companies and non-resident companies.

Resident individuals

Registration duties

Individuals who acquire Luxembourg real estate are subject to registration duties. These registration duties are payable by the purchaser. The market value or the sale price of the immovable property is subject to a tax rate of 6% increased by 1% of transcription tax. A municipal surcharge may eventually apply.

Value added tax

As a general rule, the supply and lease of existing immovable property located in Luxembourg are exempt from VAT. lt is however possible to opt for VAT on real estate transactions.

The right to opt for VAT may be exercised if the seller and the buyer or the tenant are VAT taxable persons who are entitled to recover VAT. Moreover, the buyer or the tenant must recover at least 50% of his input VAT further to the activities carried out in the property sold or rent. The applicable VAT rate is 17%.

Deductibility of costs

The property (excluding the land) is depreciable. The depreciation rate applicable to real estate properties generally lies around 2 % (for residential properties completed after 1 January 2021, a rate of 4% can apply under the condition that the buildings were completed no later than 5 years). Since 1 January 2021, a depreciation rate of 6% may also apply to sustainable energy renovation costs of old property, for a period of 10 years. The costs incurred in order to acquire the property (notary's fees, architect's fees, registration duties) have to be capitalised and depreciated.

Depreciation, interest in relation with the financing of the property, maintenance costs of the property, insurance, and property taxes (impôt foncier) may be deducted from the income deriving from the property.

In addition, from fiscal year 2021 under certain conditions, taxpayers benefiting from the above-mentioned 4% depreciation rate may claim an additional 1% tax deduction up to EUR 10,000.

Non-resident individuals

The same rules as for the resident individuals apply.

Resident companies

Registration duties

Resident companies which acquire Luxembourg real estate are subject to registration duties. These registrations duties are payable by the purchaser. The market value or the sale price of the immovable property is subject to a tax rate of 6% increased by 1% of transcription tax. A municipal surcharge may eventually apply.

The registration duties may be reduced to 2.4% in case the property is contributed to a company in exchange for shares. A municipal surcharge may eventually apply.

Value added tax

As a general rule, the supply and lease of existing immovable property located in Luxembourg are exempt from VAT. lt is however possible to opt for VAT on real estate transactions.

The right to opt for VAT may be exercised if the seller, and the buyer or the tenant are VAT taxable persons who are entitled to recover VAT. Moreover, the buyer or the tenant must recover at least 50% of his input VAT further to the activities carried out in the property sold or rent. The applicable VAT rate is 17%.

Deductibility of costs

The property (excluding the land) is depreciable. The depreciation rate applicable to real estate properties generally lies around 2 % (for residential properties completed after 1 January 2021, a rate of 4% can apply under the condition that the buildings were completed no later than 5 years). Since 1 January 2021, a depreciation rate of 6% may also apply to sustainable energy renovation costs of old property, for a period of 10 years. The costs incurred in order to acquire the property (notary's fees, architect's fees, registration duties) have to be capitalised and depreciated.

Depreciation, interest in relation with the financing of the property, maintenance costs of the property, insurance, and property taxes (impôt foncier) will be tax deductible from the taxable basis of the company.

In addition, as from fiscal year 2021 under certain conditions, taxpayers benefiting from the above-mentioned 4% depreciation rate may claim an additional 1% tax deduction up to EUR 10,000.

Non-resident companies

The same rules as for the resident companies apply.

INDIRECT PURCHASE OF REAL ESTATE

This section covers the main tax aspects of the indirect (shares) purchase of real estate.

In the first part, we describe the impact for resident individuals and non-resident individuals. Thereafter we describe the impact for resident companies and non-resident companies.

Resident individuals

Registration duties & VAT

In principle, the acquisition of shares in a real estate company established as a capital company is not subject to any registration duties.

The transfer of shares in a company is out of the scope of VAT in Luxembourg.

Non-resident individuals

Registration duties

In principle, the acquisition of shares in a real estate company established as a capital company is not subject to any registration duties.

Resident companies

Registration duties

In principle, the acquisition of shares in a real estate company established as a capital company is not subject to any registration duties.

The transfer of shares in a company is out of the scope of VAT in Luxembourg.

Non-resident companies

Registration duties

In principle, the acquisition of shares in a real estate company established as a capital company is not subject to any registration duties.

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