Luxembourg real estate levy – A new circular

On 20 January 2022, the Luxembourg tax authorities published Circular PRE IMM n°1 (the Circular) regarding the real estate levy. The Circular provides further information in respect of compliance obligations for certain Luxembourg opaque funds.

Background

The 2020 Budget Law (the Law) introduced, with effect from 1 January 2021, a real estate tax levy of 20% (REL) on:

• income from the rental of real estate assets located in Luxembourg;
• capital gains resulting from the alienation of real estate assets located in Luxembourg; and
• income from the alienation of units in entities listed under Article 175 of the Luxembourg Income Tax Law (LITL) (ie SCSs, SCSps, SNCs, etc.) or contractual funds (FCP) which hold - directly or indirectly through other tax transparent entities - real estate assets located in Luxembourg (together Relevant Real Estate Income).

The REL is payable by the following Luxembourg investment funds (In Scope Luxembourg Funds), which have a legal personality distinct from their shareholders, on Relevant Real Estate Income, either directly or indirectly through entities listed under Article 175 of the LITL or contractual funds:

• undertakings for collective investment covered by Part II of the amended Law of 17 December 2010 on undertakings for collective investment;
• specialised investment funds referred to in the amended Law of 13 February 2007 on specialised investment funds; and
• the reserved alternative investment funds referred to in Article 1 of the amended Law of 23 July 2016 on reserved alternative investment funds.

In each case, however, funds constituted as limited partnerships (société en commandite simple) are excluded.

What’s next?

In Scope Luxembourg Funds must declare the REL and Relevant Real Estate Income received or realized during a calendar year prior to 31 May of the following year – for example, by 31 May 2022 in respect of any Relevant Real Estate Income in 2021.

The REL must be paid before 10 June of the following year – so, again, by 10 June 2022 for any Relevant Real Estate Income in 2021.

In this respect, a declaration (the Declaration) must be filed each year by any In Scope Luxembourg Fund which derives Relevant Real Estate Income. This must provide the following details:

• the amount of Relevant Real Estate Income subject to the REL;
• a breakdown of the Relevant Real Estate Income per real estate asset; and
• the amount of REL levied.

It should also be noted that the Luxembourg tax authorities may request an In Scope Luxembourg Fund (or indirect entities listed under Article 175 LITL or the FCP) to substantiate the amounts of Relevant Real Estate Income and declared REL with any relevant information.

In addition, In Scope Luxembourg Funds are required to attach a certified report from a certified independent auditor to the Declaration. The report to be submitted must, in particular, cover the following:

• the determination of income received from real estate assets:
  • distinguishing between the different types of Relevant Real Estate Income; and
  • the breakdown of the Relevant Real Estate Income by asset within each category;
• details of the calculations required to determine the Relevant Real Estate Income in accordance with the provisions of Article 4 of the Law.

The Circular highlights that the REL is not deductible from the amount of the Relevant Real Estate Income, nor can it be credited or deducted by anyone.

In addition, the Circular flags up that all In Scope Luxembourg Funds must file an additional declaration for the years 2020 and 2021, notifying the Luxembourg tax authorities whether or not an In Scope Luxembourg Fund held or holds (directly or indirectly) Luxembourg real estate assets. As well; In Scope Luxembourg Funds which changed their legal form at any time in 2020 or 2021, to the extent such In Scope Luxembourg Funds owned directly or indirectly at least one Luxembourg real estate at the time of its transformation, shall notifying the Luxembourg tax authorities through the same additional declaration – for example, an In Scope Luxembourg Fund which has been converted into an entity listed in Article 175 LITL or into a contractual fund.

This additional declaration must also be filed before 31 May of the following year (so, by 31 May 2022 for the calendar year 2021).

Penalties

Failing to provide requested information could lead the In Scope Luxembourg Fund paying a penalty of up to €10.000 for default or late filling.

Conclusion

The REL applies only to In Scope Luxembourg Funds which own Luxembourg real estate assets, whereas the filing requirements are also imposed on In Scope Luxembourg Funds which do not hold Luxembourg real estate assets.