On January 20, 2022, the Luxembourg tax authorities (“LTA”) issued a circular #1 from January 20, 2022 (the “Circular“) on the application of the measures introduced by the law of 19 December 2020 (the “finance law”) concerning the Property Tax, and to clarify the reporting obligations for Luxembourg investment vehicles.
The Circular recalls the obligation to notify Luxembourg investment vehicles, even if they do not own a building in the Grand Duchy of Luxembourg. The reporting obligations must be fulfilled before May 31, 2022.
The finance law introduced anti-tax avoidance measures to target “fiscally opaque” Luxembourg investment vehicles that invest directly, or indirectly through “fiscally transparent” vehicles, in Luxembourg real estate. These vehicles are subject to a property tax of 20% (real estate levy).
This Real Estate Tax is imposed on (i) rental income from real estate, (ii) capital gains from the sale of real estate and, under certain conditions, (ii) capital gains resulting from the alienation of shares of fiscally transparent companies. holding immovable property, provided that such income is derived from immovable property located in Luxembourg and that such gains are made or received, directly or through a fiscally transparent company or a mutual fund, by a vehicle of investment.
The Luxembourg investment vehicles within the scope of this Circular are:
- Alternative investment funds (FIA) covered by part II of the amended law of 17 December 2010 concerning undertakings for collective investment (OPC);
- Specialized Investment Funds (FIS) referred to in the amended law of February 13, 2007; and
- Reserved Alternative Investment Funds (RAIF) 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.
Declaration and notification obligations
Before May 31, 2022, the aforementioned Luxembourg investment vehicles must file the declaration of property tax for the previous financial year and payment must be made before June 10, 2022. Failure to comply with this obligation may result in a fine imposed by the LTA amounting to €10,000.
For the financial years 2020 and 2021, an additional obligation is introduced whereby the aforementioned Luxembourg investment vehicles will have the obligation to declare to the LTA:
- The direct or indirect ownership (through the use of a fiscally transparent or contractual vehicle) of real estate in Luxembourg at any time during the calendar years 2020 and 2021;
- The absence of possession of real estate located in Luxembourg during all of the calendar years 2020 and 2021;
- A change in legal structure resulting in the company moving from a situation of tax opacity to a situation of tax transparency during the years 2020 and 2021, insofar as this investment vehicle directly or indirectly held real estate in Luxembourg at the time of its transformation.
Failure to comply with the notification obligations before May 31, 2022 may result in a fine of €10,000 imposed by the LTA.
In the large Luxembourg investment vehicles falling within the scope of the Circular, which, directly or indirectly, own or invest in Luxembourg real estate, will have to file the declaration of property tax before 31 May 2022, and the vehicles who do not own or invest in Luxembourg property must report this absence before this date. Failure to comply may result in a fine imposed by the LTA.