I. Introduction
The Luxembourg legislators and administration have brought several legislative changes impacting the real estate industry in Luxembourg, and further legal initiatives have been announced in draft bills. The Luxembourg Constitutional Court also issued an important decision.
II. Recent changes in laws and regulations
- 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 United Kingdom.
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, e.g., 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.
- New domestic real estate sector tax provisions
With the introduction of the Law of 16 May 2023, amending the modified Law of 30 July 2002 on various tax measures to encourage the marketing and acquisition of building land and residential property, 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) adds up to 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.
2. 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.
Concretely, concerning the aspects relevant to Luxembourg real estate professionals, we can note the following.
First, the new law introduces two new regulated professions subject to permits: “real estate business introducers” and “short-term accommodation lessors”.
The activity of “real estate business introducer” is a commercial activity consisting of putting a real estate agent in touch with a real estate developer or any other person wishing to sell or rent a property, without necessarily intervening in the transaction as such.
That of “short-term accommodation lessor”is a commercial activity consisting of renting one or several accommodation units for ninety nights or more accumulated over one year.
The second category mainly concerns persons who offer “Airbnb” type rentals.
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.
3. 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.
In summary, we note the following main new points:
- 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.
4. Entry into force of the Law of 7 January 2022 on accessibility to all 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.
As of 1 July 2023, all new building permit applications must take these accessibility requirements into account.
The law stipulates that existing buildings must be brought into compliance by 1 January 2032 at the latest.
Violators of the law may be subject to sanctions, as well as closure of their establishment and a ban on participating in public contracts.
III. Bills currently in process
1. The Reform of the Property Tax (Impôt foncier) – Bill 8082
The Property Tax was first introduced in Luxembourg under the First French Republic in the form of the “contribution foncière” (land tax) by the law of 3 Frimaire de l’an VII (23 November 1798).
The Property Tax reform has been part of political discussions for years. To mitigate the housing shortage, on 10 October 2022, the Luxembourg government adopted Bill 8082 on the property tax, the land mobilization 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 modernizing 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.
2. 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.
The following data shall be entered in the municipal register:
- 1° existing buildings and dwellings; and
- 2° buildings and dwellings whose projects are subject to planning permission within the meaning of Article 37 of the amended Act of 19 July 2004 on municipal planning and urban development.
The entry must be made within eight days of the granting of a building permit.
The data in the municipal register thus shall be the identifier of the buildings and dwellings, and the “reference information”.
The reference information of buildings and dwellings includes data concerning the:
- 1° geolocation or cadastral reference;
- 2° address reference;
- 3° type and allocation;
- 4° status; and
- 5° technical characteristics.
A grand-ducal regulation shall specify the details on the reference information, as well as the methods of entry.
For the maintenance of the municipal registers, the following sources may be used to gather reference information:
- 1° Land Registry and Surveying Administration geolocation data;
- 2° municipality building permit files; and
- 3° on-site inspection findings.
For the initialization of the municipal registers, the following sources may be used by the communes to provide the reference information:
- 1° Administration of Cadastre and Topography geolocation and dimension data, if available;
- 2° building permit files from municipalities or any other useful source of information available from the communes;
- 3° on-site inspection findings; and
- 4° data to be provided by the owners at the municipalities’ request.
A national register of buildings and dwellings shall be established with the following data:
- 1° the unique alphanumeric identification of buildings and dwellings, as well as the registration and maintenance of data relating to them;
- 2° the provision of data on buildings and dwellings;
- 3° the preservation of the history of such data; and
- 4° the centralization of municipal registers of buildings and dwellings at the national level.
The national register data will be derived from the reference information, including the data of the municipal registers of buildings and dwelling.
The municipalities are responsible for any data entered or modified and for any information communicated to the national register, as well as for the conformity of the supporting documents. The municipalities shall also be responsible for any missing data that may be included in the national register.
