LUXEMBOURG Law and Practice Contributed by: Claire-Marie Darnand, Victorien Hémery, Johan Léonard, Benjamin Marthoz and Tom Storck, Stibbe
8.5 Tax Benefits When a Luxembourg opaque company owns real estate, the company can recognise tax- deductible depreciation based on the asset’s expected useful life. Business expenses such as management fees are deductible under certain conditions. Arm’s length borrowing costs can also be deducted annually, up to EUR3 million or 30% EBITDA (save for exceptions), whichever is high - er. Furthermore, Luxembourg tax law enables (under certain conditions) a Luxembourg company to defer capital gains realised upon the disposal of a real estate asset if an amount corresponding to the sale proceeds realised is reinvested into another fixed asset. Similarly, individuals are allowed to defer capi - tal gains realised upon disposal of a real estate asset held at least two years after its acquisition in the context of their private wealth manage - ment if an amount corresponding to the sale pro - ceeds realised is reinvested in real estate rented out as social housing or in real estate meeting certain energy and environmental criteria.
Non-residents may be entitled, under certain conditions, to deduct general expenses related to the obtainment of real estate income, and also to depreciate the value of the assets. Capital Gains Upon the Sale of a Luxembourg Property The basis for assessing real estate income tax is usually the difference between the purchase price and the sale price of the real estate prop - erty. The capital gains realised upon the alienation of an immovable property are generally taxable in the country of location of such property (ie, Lux - embourg). The state of residence of the aliena - tor typically provides relief for the taxes paid in Luxembourg. Accordingly, capital gains arising from the sale of a Luxembourg property by a non-resident com - pany are subject to the standard Luxembourg corporate income tax rates. For non-resident individuals, capital gains are not subject to a separate tax but instead to the standard rates of personal income tax (or reduced rates under certain conditions). As of 1 January 2021, a 20% real estate levy applies to rents and capital gains derived from real estate located in Luxembourg whenever the owner is a tax opaque UCI, a SIF or a RAIF. Spe - cific reporting is required of the relevant fund vehicles in relation to this levy.
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