Luxemburg: New single tax declaration obligation for investment vehicles
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On January 20, 2022, the Luxembourg tax authorities issued a tax circular1 clarify the reporting obligations for certain Luxembourg investment vehicles in corporate form. This declaration is part of the new Luxembourg regime which imposes a 20% levy (the “Levy”) on income and gains derived, directly or indirectly, from immovable property located in Luxembourg, as enacted in the Luxembourg finance law of 19 December 2020, in force since January 1, 2021.
It should be emphasized that these reporting obligations apply even if the investment vehicle has never invested, directly or indirectly, in Luxembourg real estate.
Single reporting obligation for tax-exempt Luxembourg alternative corporate investment funds
All Luxembourg exempt alternative investment vehicles in corporate form are generally required to file a single reporting requirement by 31 May 2022. These vehicles will be required to file, whether they have held, directly or indirectly, Luxembourg real estate in 2020 or 2021. Failure to comply with this single declaration obligation may result in penalties of up to 10,000?.
Luxembourg investment vehicles concerned
The Luxembourg alternative investment vehicles affected by the reporting obligation and the potential levy are those in the form of a company (for example SA, S.à rl or SCA) and exempt from Luxembourg corporate tax. These vehicles include:
- Undertakings for collective investment (OPC) subject to Part II2
- Specialized investment funds (SIF)3
- Reserved Alternative Investment Funds (RAIF)4
Luxembourg limited partnerships (SCS and SCSp) and FCPs that are fiscally transparent are excluded both from the scope of the Levy and from the reporting obligations (except in the very specific case mentioned below). Foreign investment vehicles and SICARs5 (in the form of a corporation or general partnership) are also excluded. RAIFs in the form of companies which invest exclusively in venture capital (and are therefore subject to Luxembourg corporation tax) may also be excluded from the scope of the levy and reporting obligations, although this point is not not clearly confirmed.
In addition, Luxembourg alternative investment vehicles exempt in the form of a company which changed their legal form in 2020 or 2021 to become a fiscally transparent entity or an FCP are also subject to this reporting obligation insofar as they have held ( directly or indirectly) at least one Luxembourg property at the time of the change of their legal form.
Scope of the Luxembourg property tax of 20%
The Levy applies to all income and capital gains from Luxembourg immovable property which is held, directly or indirectly, by the aforementioned Luxembourg investment vehicles. The levy may still apply if the Luxembourg property was held indirectly through one or more fiscally transparent entities6 or FCP. Additionally, there is no de minimis exception, so even small amounts of gains or income from these real estate assets are within the scope of reporting and tax. For the sake of clarity, any property not physically located in Luxembourg is outside the scope of the Levy.
Where the real estate asset is held indirectly through fiscally transparent Luxembourg entities or FCPs, the amount subject to the Levy will be determined pro rata to the ultimate Luxembourg corporate investment vehicle. The capital gain from the sale of shares in fiscally transparent entities or FCPs will be assimilated to the sale of the underlying property given the increase in value of the property. This levy is neither deductible when determining the amount of income from real estate nor chargeable to any other Luxembourg tax.
Annual report compared to the single report of 2022
Luxembourg exempt corporate investment vehicles without direct or indirect Luxembourg real estate investments only need to file the report once for tax years ending in 2021 with a filing deadline before the 31st May 2022. However, Luxembourg investment vehicles that realize income or gains from Luxembourg immovable property are subject to levy and deposit requirements on a rolling annual basis. The Levy is due from January 1 of each year and a specific declaration must be filed before May 31 of the following calendar year (for example before May 31, 2022 for the financial year ending in 2021 and following).
1. Circular from the director of contributions PRE_ IMM no. of 20 January 2022
2. The Luxembourg law of December 17, 2010
3. The Luxembourg law of February 13, 2007
4. Luxembourg law of 23 July 2016
5. The risk capital investment company (“risk capital investment company” or SICAR) subject to the Luxembourg law of 15 June 2004
6. Fiscally transparent entities within the meaning of Article 175(1) of the Luxembourg income tax law (“LITL”). The reference to article 175, paragraph 1, of the LITL should include both Luxembourg fiscally transparent entities and similar foreign fiscally transparent entities, even if the reference to the latter could lead, in certain cases, to economic double taxation. of the same Luxembourg real estate income/gain (Luxembourg corporation tax at non-resident level under article 156, paragraphs 7 and 8, point a) and real estate levy of 20% at Luxembourg fund level).
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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