LUXEMBOURG Law and Practice Contributed by: Claire-Marie Darnand, Victorien Hémery, Johan Léonard, Benjamin Marthoz and Tom Storck, Stibbe
7.7 Requirements Before Use or Inhabitation
frequently discounted by a provision for latent capital gains. Most of the investment vehicles can be struc - tured to ensure tax efficiency. 8.3 Municipal Taxes Each municipality in Luxembourg is authorised to levy a property tax on any immovable prop - erty situated within the limits of the municipality, whether built on or not. The property tax ranges between 0.7% and 1% of the unitary value of real property (determined based on the value of the property or of a similar property in 1941, which is then multiplied by a communal rate). 8.4 Income Tax Withholding for Foreign Investors Rental Income Non-resident companies or individuals are sub - ject to taxation on their Luxembourg-sourced rental income similarly to Luxembourg resident taxpayers, although subject to the provisions of any applicable tax treaty. Double tax treaties concluded by Luxembourg are based on Article 6 of the OECD Model Convention as far as the taxation of rental income is concerned, accord - ing to which rental income is taxable in the state where the immovable property is located. Non-resident companies deriving real estate income (ie, rents) from properties in Luxembourg are subject to the same Luxembourg taxation as resident companies. For non-resident individuals directly owning real estate assets located in Luxembourg, the rental income will be subject to personal income tax in Luxembourg, in accordance with progressive rates.
Ownership rights relating to real property are entered into the Administration Registry and the Mortgage Registry, which prevents a third party from purchasing the same piece of property in good faith.
8. Tax 8.1 VAT and Sales Tax
In Luxembourg, purchasing an existing building is generally exempt from VAT. However, under certain conditions and similar to renting, this purchase can be subject to VAT by submitting a VAT option form (see 6.7 Payment of VAT ). In the case of a building to be constructed, the construction work is subject to VAT at a rate of 17%. A super-reduced VAT rate of 3% on the con - struction and renovation of housing may apply if the property is used as the main residence for a period of at least two years. This VAT benefit may not exceed EUR50,000 per built or reno - vated residence. 8.2 Mitigation of Tax Liability The significant transfer taxes on real estate assets (7% to 10%, depending on the location and nature of the property) led to the vast major - ity of large real estate transactions assuming the format of share deals. Since the registered owner of the property remains unchanged, no transfer taxes are due. In addition, the underly - ing capital gains on the property itself will not be realised and thus will not be taxed. The latent tax burden is transferred to the new shareholder and will only be realised when the property is sold in an asset deal. Therefore, the selling price is
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