Luxembourg investment vehicles Real estate levy

On the 20th January 2022, Luxembourg tax authorities (“LTA”) issued Circular n°1 du 20 janvier 2022 (the “Circular”) on the application of the measures introduced by the Law of 19 December 2020 (the “Budget Law”) regarding the Real Estate Levy, and to provide clarification on the reporting obligations for Luxembourg investment vehicles.

The Circular reminds of the notification obligation of Luxembourg investment vehicles, even though they do not own real estate in the Grand Duchy of Luxembourg. The reporting obligations must be fulfilled before the 31st of May 2022.

The Budget Law introduced anti-avoidance measures to target the “tax-opaque” Luxembourg investment vehicles which directly, or indirectly through “tax-transparent” vehicles, invest in Luxembourg real estate. These vehicles are subject to a 20% real estate levy (prélèvement immobilier).

This Real Estate Levy is imposed on (i) rental income from real estate property, (ii) capital gains from the sale of real estate property and, under certain conditions, (ii) capital gains resulting from the alienation of shares in tax transparent company holding real estate, provided that this income is derived from real estate located in Luxembourg and that such gains are realised or received, directly or through a fiscally transparent company or a mutual fund, by an investment vehicle.

The Luxembourg investment vehicles under the scope of this Circular are:

  • Alternative Investment Funds (AIFs) that fall under Part II of the amended law of 17 December 2010 concerning undertakings for collective investment (UCIs);
  • Specialised Investment Funds (SIFs) referred to in the amended law of 13 February 2007; and
  • Reserved Alternative Investment Funds (RAIFs) referred to in article 1 of the amended law of 23 July 2016.

Partnerships (SCS/SCSp) and contractual vehicles (FCP) are excluded from this obligation.

Reporting and notification obligations

By the 31st of May 2022, the abovementioned Luxembourg investment vehicles, must file the real estate levy return for the precedent financial year, and payment must be made by the 10th June 2022. Failure to comply with this obligation may result in a fine imposed by the LTA arising to 10,000€.

For 2020 and 2021 financial years, an additional obligation is introduced whereby the aforementioned Luxembourg investment vehicles will have the obligation to report the following to the LTA:

  • The direct or indirect (through the use of a tax-transparent or contractual vehicle) ownership of real estate in Luxembourg at any time during the calendar years 2020 and 2021;
  • The absence of owning real estate located in Luxembourg during the entire calendar years 2020 and 2021;
  • A change of legal structure resulting in the company shifting from a situation of tax opacity to a situation of tax transparency during the years 2020 and 2021, to the extent such investment vehicle owned directly or indirectly real estate in Luxembourg at the time of its transformation.

Failure to comply with the notification obligations by the 31st May 2022, may result in a 10,000€ fine imposed by the LTA.

In big, Luxembourg investment vehicles falling under the scope of the Circular, which directly or indirectly, own or invest, in Luxembourg real estate, will have to submit the real estate levy return before the 31st of May 2022, and those vehicles which do not own or invest in Luxembourg real estate will have to report this absence before such date. The failure to comply may result in a fine imposed by the LTA.