With effect as from 1 January 2021, the Law of 19 December 20202 (the “2021 Budget”) has introduced several important changes to the Luxembourg taxation of real estate income and investments. Some of the changes were introduced in line with the announcements made by the Luxembourg government and the 2018 coalition agreement and aim at addressing a perceived loophole in the Luxembourg taxation of income and gains from domestic real estate held by Luxembourg residents.
In particular, the 2021 Budget introduced a new levy of 20% on certain gains and income arising from real estate assets situated in Luxembourg and realised by certain tax-exempt investment vehicles. The provisions relating to the new real estate levy are completed by a new series of reporting obligations for such investment vehicles.
Another measure in relation to the new real estate levy is a change to the investments which are allowed for private wealth management companies (SPFs) under Luxembourg law, namely by prohibiting an SPF to invest into Luxembourg properties through tax transparent entities. In addition, aiming at reducing the differential treatment between share deals and asset deals regarding the registration taxes applicable to certain transactions involving Luxembourg properties, the rate applicable to contributions of immovable properties to a company has been increased. Finally, the 2021 Budget also reduced the tax deduction available for certain investments into rental housing by adjusting the special amortisation rate and the conditions under which the investment has to be done to benefit from this accelerated depreciation for tax purposes.
The present article discusses each of the above measures from a legal and technical perspective and looks at the consistency of these measures with the stated objectives of the law