LUXEMBOURG: An Introduction to Real Estate

Recent Legislative and Regulatory Changes 

New Tax Measures 

i. New Double Tax Treaty (“DTT”) between Luxembourg and the UK

On 19 July 2023, the Luxembourg Parliament ratified the new DTT between Luxembourg and the UK.

The new DTT has introduced a so-called “Property-Rich” provision in Article 13.2.

According to that provision, the right to tax gains realized through a sale of shares or corporate interests (or comparable interests, eg, partnership or trust interests) in an entity deriving more than 50% of its value directly or indirectly from immovable property situated in the other state (a property-rich entity) is attributed to the state where the immovable property is located.

Also, the full withholding tax exemption on dividend distributions to the recipient who is beneficial owner of the income will not apply to distributions by investments whose income derives from immovable property that is tax exempt. In such a case, the DTT will allow for a 15% withholding tax. The exemption will however in such case still apply to certain pension funds.

The provisions of the new DTT apply as from 1 January 2024.

ii. New domestic real estate sector tax provisions

With the introduction of the Law of 16 May 2023, the amount of the tax credit (Bëllegen Akt), was increased from EUR 20,000 to EUR 30,000 for each purchaser.

Currently, the standard rate for real estate acquisitions (house, apartment, building plot) is 7%, 6% for registration duties and 1% for transcription duties.

Previously, subject to certain conditions, individuals wishing to acquire real estate property for their own personal use benefitted from a tax credit of up to EUR 20,000, deductible from registration and transcription duties.

Reform of the Right of Establishment 

Luxembourg’s right of establishment regime was impacted by the adoption of the Law of 26 July 2023 amending the Law of 2 September 2011 regulating access to the professions of craftsperson, merchant, manufacturer as well as to certain liberal professions.

First, the new law introduces two new regulated professions subject to permits: “real estate business introducers” and “short-term accommodation lessors”.

Secondly, the reform subjects to a business permit the activity of “rental of shared office space”, something which risks directly impacting a large number of economic operators.

Housing Assistance Reform 

The adoption of the Law of 7 August 2023 on affordable housing and the Law of 7 August 2023 individual housing assistance has reformed the right to housing assistance, until now mainly regulated by a 1979 law.

The main new points are:

- Legal definition of "affordable housing";

- Overhaul of the system of individual housing subsidies, in particular by introducing new systems of grants and subsidies, and by relaxing the conditions for granting them;

- Overhaul of construction subsidy system;

- Introduction of new concepts (social developer, low-cost sales, social landlord, etc.);

- Review of the affordable housing allocation process and introduction of a one-stop shop; and

- “Social rental management” concept enshrined into law.

Law of 7 January 2022 on Accessibility to Public Places, Public Roads and Collective Housing 

The Law of 7 January 2022 on the accessibility to all public places, public roads and collective housing came into force on 1 July 2023.

It establishes the principle that any place accessible to the public (whether public or private) must have the necessary facilities to enable access to all persons, including those with disabilities.

The Reform of the Property Tax (Impôt foncier) - Bill 8082 

To mitigate the housing shortage, on 10 October 2022, the Luxembourg government adopted Bill 8082 on the property tax, the land mobilisation tax and the tax on the non-occupation of housing (Projet de Loi sur l’impôt foncier, l’impôt à la mobilisation de terrains et l’impôt sur la non-occupation de logements).

Bill 8082 not only aims at modernising the property tax but also proposes to introduce two new taxes to encourage landowners to mobilize building land and unoccupied dwellings and entails a fundamental reform of the Luxembourg property tax regime. The legislative process is currently underway before the Parliament.

Creation of the National and Municipal Registers of Buildings and Dwellings - Bill 8086 

On 1 June 2022, the government in council confirmed the principle that the reform of the property tax and the introduction of a tax on the non-occupation of dwellings are intrinsically linked and must be developed in parallel. The collection of the tax on non-occupation of dwellings requires the creation of a National Register of Buildings and Dwellings (Registre National des Bâtiments et des Logements and a Municipal Register of Buildings and Dwellings in each municipality (Registre Communal des Bâtiments et des Logements), as well as the creation of a register of taxation on non-occupancy of dwellings. The latter register is provided under the bill introducing the tax on non-occupation of dwellings.

Two levels of registers will thus be created.

Amendment of the “Baulandvertrag” (building land contract) – Bill 7139 

On 27 October 2022, the Committee on Internal Affairs and Gender Equality tabled new amendments to the Baulandvertrag.

Bill 7139, introduced in 2017, aims to improve the effectiveness of measures for the implementation of urban development plans (“PAG”) to cope with the chronic lack of housing in Luxembourg.

The bill has once again been restated by the amendments, and now revolves around three measures:

i. Introduction of new easements

The amended bill introduces new easements, the purpose of which is to limit the mode and degree of land use over time in accordance with the PAG implementation concept.

ii. Introduction of a simplified modification procedure for the PAG

The amended bill allows the municipalities to use a simplified procedure to amend their PAG, which is supposed to shorten the timeframe from 12 to 7 months.

However, this simplified procedure will only be available for minor adjustments of the PAG which do not affect its comprehensive structure and orientation.

iii. Amendment of the urban reparcelling procedure

Finally, the amended bill introduces a new procedure for urban reparcelling which should allow the lands owned by recalcitrant landlords who refuse to cooperate in the servicing of the PAP NQ, but are vital for its development, to be exchanged with plots within the PAP NQ that can be developed at a later stage.

However, in the absence of a political consensus and in the face of numerous criticisms from the State Council, the text was once again referred to the Home Affairs Committee on 24 November 2023, so it is highly likely that the draft will be reworked before being put to a vote.

Amendment of the Law of 21 September 2006 on residential leases – Bill 7642 

Bill 7642, tabled on 31 July 2020 by the Luxembourg Ministry of Housing plans to reform the Law of 21 September 2006 on residential leases.

In broad terms, the bill now provides for the following changes to the existing legal framework:

 i. Exclusion of verbal leases and compulsory statements

ii. Establishment of a mandatory legal regime specific to co-tenancy

iii. Redesign of the mechanisms for the legal rent ceiling and rent adjustment

iv. Agency fees

v. Rental guarantee

vi. Repeal of the concept of "luxury housing"

However, in the absence of a political consensus and in the face of numerous criticisms from the State Council, the text was once again referred to the commission for housing and regional planning on 24 November 2023, so it is highly likely that the draft will be reworked before being put to a vote.

Package of Measures to Revitalize the Housing Market – Bill 8353 

After Luxembourg's parliamentary elections on 8 October 2023, a new government was sworn in which, on 7 February 2024, introduced before the Parliament in Bill 8353 several measures aimed at revitalizing the housing and construction markets.

They consist primarily of short- and long-term housing tax incentives as follows:

 i. Short-term housing tax incentives for 2024 only

• Further increase of tax credit for registration and transcription duties (Bëllegen Akt) from EUR 30,000 to EUR 40,000 per purchaser for the primary residence, when notarial deed is passed between 1 January and 31 December 2024, to be applied to registration and transcription fees described in section II, 1.(ii) above. After 2024, the abatement will return to EUR 30,000 per purchaser;

 • Introduction of a new tax credit for investments in rental housing by natural persons – applies to purchases of an off-plan building or a portion thereof with same notarial deed requirements as above and other conditions; • Reduction of the capital gains tax rate to one quarter of the income tax, a maximum of 12.845%, to boost property sales by natural persons, return to a maximum of 24.29% after 2024;

 • Introduction of a 2% “accelerated amortization” for 6 years (1 year increase in duration) as well as a special construction abatement of 4% of the amortization base, capped at EUR 250,000, for housing built to be rented – applies to off-plan rental housing purchased between period described above; and

 • Immunisation of real estate capital gains transferred onto social housing or housing attaining a class A+ energy performance – applies capital gains on the transfer of built or unbuilt buildings held for at least two years in an individual’s personal assets.

ii. Long-term housing tax incentives

• Increase in debt interest tax deductibility for primary residence – starting in 2024, EUR 4000 from 1 to 5 years; EUR 3000 from 6 to 10 years; and EUR 2000 for over 10 years (draft amendments to 1969 Grand-Ducal Regulations on rental value of certain property types);

• Increase in the tax exemption of net rental revenues from social housing from 75% in 2023 to 90% in 2024;

 • Extension of the capital gains tax exemption regime to the Housing Fund (Fonds de Logement), the local affordable housing institution (currently applies to the State, municipalities and municipality associations);

• Partial tax exemption of rental subsidies paid by an employer to an employee – 25% exemption limited to EUR 1000 per month per salaried employee; and

• Increase in the holding time required for speculation profits to be converted into capital gains – through 2024, property held less than or equal to two years generates speculation profits taxed at a scaled rate, that held over two years generates transfer capital gains taxed at the current half-total rate (or quarter-total rate if above 2024 reduction rate is adopted), starting in 2025 holding less than or equal to five years generates speculation profits taxed at a scaled rate, after five years it generates transfer capital gains, taxed at the half-total rate.