OVERVIEW OF LUXEMBOURG REAL ESTATE

Tax treatment of income and gains of Luxembourg real estate

_{(1)    To which a surcharge for the unemployment fund contribution of 7% or 9% is added. The maximum tax brackets range between 0% and 45.78%. lf the unemployment fund contribution is 9%, the calculation is as follows: U.F.C.: 42% x 9% = 3.78%. Tax: 3.78% + 42% = 45.78%.        
(2)    Municipal business tax rate applicable in Luxembourg City.}

Rental income

Individuals

Introduction
Rental income derived from a property investment is subject to Luxembourg income tax.

Liability to tax

Rental income received by individuals is subject to personal income which varies between 0% and 42% (to which the surcharge for the unemployment fund contribution of 7% or 9% is added) depending on the taxpayer’s overall level of income. An additional contribution so called contribution for dependence insurance (‘assurance dépendance’) of 1.4% is due by individual resident taxpayers.

Basis to tax

Resident individuals are taxed on their worldwide income. The following categories of income are aggregated in computing the total taxable income: 

• Trade and business income;
• Agriculture and forestry income;
• Income from independent professional services;
• Income from employment;
• Income from pensions and annuities;
• Income from movable capital;
• Income from rentals and leases;
• Miscellaneous income.

The net amount of the rental income derived from the property investment is taxable as category 7 ‘Income from rentals and leases’ and subject to the personal income tax.

Companies

Introduction
Rental income is subject to Luxembourg income tax.

Liability to tax 
Rental income received by resident companies is subject to corporate income tax (C.I.T.) and municipal business income (M.B.T.).

Rental income received by non-resident companies is only subject to corporate income tax provided that the non-resident companies have no permanent establishment in Luxembourg.

Basis to tax
Resident companies: 

• Income up to EUR 175,000 is subject to corporate income tax and municipal business tax at a rate of 22.8% including municipal business tax of 6.75% (for Luxembourg City) and the surcharge for unemployment fund of 1.05%. 
• Income between EUR 175,000 and EUR 200,000 gives rise to a flat amount of EUR 26,250 plus 31% of the income exceeding EUR 175,000 (up to 200,000). The municipal business tax of 6.75 % (for Luxembourg City) and the surcharge for unemployment fund should be added.
• Income exceeding EUR 200,001 is subject to a rate of 24.94% including municipal business tax of 6.75% (for Luxembourg City) and the surcharge for unemployment fund of 1.19%.

Non-resident companies: 

• Income up to EUR 175,000 is subject to corporate income tax at a rate of 16.05% including the surcharge for unemployment fund of 1.05%. 
• Income between EUR 175,000 and EUR 200,000 gives rise to a flat tax amount of EUR 26,250 plus 31% of the income exceeding EUR 175,000 (up to 200,000).
• Income exceeding EUR 200,001 is subject to a rate of 18.19% including the surcharge for unemployment fund of 1.19%.

Capital gains

Individuals

Introduction
In general, capital gains realised by individuals on the disposal of property are subject to the personal income tax.

Liability to tax
Capital gains realised by individuals on disposal of property are taxable as miscellaneous income ('bénéfice de spéculation') and subject to personal income tax from 0% to 42% (to which the surcharge for the unemployment fund contribution of 7% or 9% is added) depending on the taxpayer's overall level of income. An additional contribution so called contribution for dependence insurance ('assurance dépendance') of 1.4% is due by individual resident taxpayers.

Exemptions
Capital gains realised by an individual on the disposal of the principal residence may be exempt from taxation in Luxembourg under certain conditions.

Capital gains realised by individuals on the disposal of a property, other than the principal residence, and which has been held for more than 2 years prior the sale, may benefit from an allowance of EUR 50.000 or EUR 100,000 (for taxpayers taxable jointly) every 10 years. The personal income tax rate is 50% of the marginal tax rate. An additional allowance of EUR 75.000 is granted for capital gains on the sale of a property inherited in the direct line and which consisted of the parent's main residence. These deductions may not create a loss.

Basis to tax

For capital gains realised by individuals on the disposal of a property other than the principal residence, and which has been held less than 2 years prior the sale, the capital gain corresponds to the difference between the acquisition price and the disposal proceeds without taking into account any deductions.
For capital gains realised by individuals on the disposal of property other than the principal residence, and which has been held more than 2 years prior the sale, the capital gain corresponds to the difference between the revalued acquisition price (taking into account the inflation) and the disposal proceeds without taking into account any deductions.

Companies

Introduction
Capital gains realised on the disposal of property by resident companies are subject to corporate income tax and municipal business tax.
Capital gains realised by non-resident companies are only subject to corporate income tax provided that the non-resident companies do not have a permanent establishment in Luxembourg. If a company qualify as permanent establishment must be analysed in a case-by-case basis.

Liability to tax

Resident companies: 

• Income up to EUR 175,000 is subject to corporate income tax and municipal business tax at a rate of 22.8% including municipal business tax of 6.75% (for Luxembourg City) and the surcharge for unemployment fund of 1.05%. 
• Income between EUR 175,000 and EUR 200,000 gives rise to a flat tax amount of EUR 26,250 plus 31% of the income exceeding EUR 175,000 (up to 200,000). The municipal business tax of 6.75 % (for Luxembourg City) and the surcharge for unemployment fund should be added.
• Income exceeding EUR 200,001 is subject to a rate of 24.94% including municipal business tax of 6.75% (for Luxembourg City) and the surcharge for unemployment fund of 1.19%.

Non-resident companies: 

• Income up to EUR 175,000 is subject to corporate income tax at a rate of 16.05% including the surcharge for unemployment fund of 1.05%. 
• Income between EUR 175,000 and EUR 200,000 gives rise to a flat tax amount of EUR 26,250 plus 31% of the income exceeding EUR 175,000 (up to 200,000).
• Income exceeding EUR 200.001 is subject to a rate of 18.19% including the surcharge for unemployment fund of 1.19%.

Exemptions

Companies can defer taxation on realised capital gains subject to the following conditions:

• The property which has been sold was in the balance sheet of the company for at least 5 years preceding the disposal
• The company is subject to regular bookkeeping
• The company reinvests the gain in assets which can be allocated to a permanent establishment located in Luxembourg
• The reinvestment takes place before the end of the second fiscal year following the year of the sale
• If the reinvestment does not take place during the fiscal year of the sale, the part of the gain which has not yet been reinvested must be booked into a special reserve.
   

Luxembourg VAT & transfer taxes

* if the option to submit the lease to VAT has been exercised. The temporary  VAT rate of 16%  has expired. As from 01.01.2024, the standard VAT rate of 17% has been reinstated.       
** a municipal surcharge corresponding to 50% of the registration duties is due on the transfers of commercial real estates which take place in Luxembourg city.

Value Added Tax

Individuals

Introduction
Value added tax is a tax based on the increase in value of a product or service at each stage of the supply the chain.
Liability to tax
In principle, if a company performs commercial or professional activities in Luxembourg, it will be subject to the VAT.
Basis to 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%.
The off-plan sales (commonly known as VEFA in Luxembourg) are subject to VAT.

Companies

The same rules as for individuals apply.

Registrations duties

Individuals

Introduction

Registrations duties are due on the transfer of real estate located in Luxembourg from one person or company to another.

Liability to tax

Registration duties are levied on the acquisition of the legal or economic ownership of Luxembourg real estate and are payable by the purchaser.

Basis of tax

The market value or the sale price of the immovable property is taxed at a tax rate of 6% (registration duties) 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.

Companies

The same rules as for individuals apply.

Luxembourg Net Wealth/worth taxes

_{* In the event that the taxable wealth exceeds EUR 500.000.000, the rate drops to 0.05% for the part exceeding EUR 500.000.000.}