Buying Property in Luxembourg benefits from a favorable tax regime regarding real estate, attracting lots of interest.
The Grand Duchy of Luxembourg is one of the Europe’s leading financial centres and a prime destination both for large corporations and individuals thanks to its political, economic and regulatory stability. Luxembourg also offers a favorable tax regime in connection to real estate (e.g. low property tax compared to neighboring countries, tax deductibility of mortgage interest).
The most interesting and maybe less commonly known things regarding acquisition of real estate in Luxembourg are as follows:
Sale before completion/off-plan sale (vente en l’état futur d’achèvement)
Off-plan sales are characterized by the conclusion of preliminary sale agreements (contrats de réservation) which are extensively regulated to protect the buyer’s rights. As Property Purchase experts in Luxembourg we have observed that almost all preliminary sale agreements concluded in the Grand Duchy of Luxembourg, even with well-known real estate developers, do not respect such regulation and are thus (i) much less protective of the buyer’s rights and (ii) bear the risk of being declared null and void by a Court.
One of the Basics while buying Property in Luxembourg: Buyers should know that preliminary sale agreements cannot, under any circumstances, provide for a down payment from the buyer to the seller. At most, 2% of the agreement value can be consigned to a specific bank account set up by the buyer.
Furthermore, the asset to be built and sold should be described with as much detail as possible in the preliminary sale agreement so that the buyer can more easily void the contract upon completion should the description not have been respected.
Preliminary sale agreements (compromis de vente)
When the real estate asset to be acquired already exists, the acquisition process usually first involves the conclusion of a preliminary sale agreement, followed by a notarial deed of acquisition.
Depending on the location of the real estate asset, buyers should be aware that the Luxembourg laws require the preliminary sale agreement to include specific provisions regarding urban and environmental regulations to be valid and lawful, however these are usually not mentioned in such agreements.
Where a company owns a real estate asset, buyers can purchase the shares of the company instead of buying the real estate asset directly.
This allows the buyers, subject to any change in legislation or practices of the competent authority, to avoid paying 7% to 11,2% of the acquisition price for registration taxes (droits d’enregistrement et de transcription), rendering the transaction more attractive than a direct acquisition of the real estate asset.
As this is a mere tolerance from the competent authority, we recommend to keep the asset between 2 or 4 years and not to resell it immediately. Otherwise registration taxes may apply.