The Luxembourg tax authorities have started to issue late penalties of a lump sum of EUR 10,000 for non-compliance with the reporting obligation in terms of real estate levy.
In light of this action, we recommend fund managers of Luxembourg opaque investment vehicles to confirm that their reporting obligation has been met and, if not, to report as soon as possible before a sanction is pronounced.
Property tax summary
The real estate levy was introduced by the 2021 finance law and the reporting obligation was specified therein via an administrative circular issued by the Luxembourg tax authorities on January 20, 2022. In summary, opaque investment vehicles established in Luxembourg who receive income from real estate are subject to a property tax, which must be declared and paid annually to the Luxembourg tax authorities.
The investment vehicles subject to this real estate levy are those which are tax residents in Luxembourg and which have a separate legal personality from that of their partners, such as:
- Undertakings for Collective Investment (OPC);
- Specialized Investment Funds (SIF); and
- Reserved Alternative Investment Funds (RAIF).
The exception applies to investment vehicles that are created in the form of limited partnerships (ie.limited partnership” and “special limited partnership», respectively SCS and SCSp) insofar as they hold (directly or indirectly) real estate in Luxembourg. This means that opaque investment vehicles holding stakes in fiscally transparent vehicles (such as SCS, SCSp, partnership – CNS, civil society – SCI or mutual fund – FCP) who receive or realize income from real estate located in Luxembourg are also subject to the said obligation and levy since the real estate income is then deemed to have been received or realized by the Luxembourg opaque investment vehicle.
It should be noted that Luxembourg investment vehicles not subject to the aforementioned regimes and taking the form of a fully taxable company (e.g. limited liability company – Sarl) are outside the scope of property tax, as well as fiscally transparent Luxembourg investment vehicles (for example constituted as SCS or SCSp), with the exception of the reporting obligation where applicable.
From 2021, Luxembourg opaque investment fund vehicles affected by this measure are subject to property tax at the rate of 20% on all income from real estate located in Luxembourg, such as:
- rental income derived (directly or indirectly) from Luxembourg real estate; and
- disposal gains from such assets (directly or indirectly via fiscally transparent entities, either on disposal of the real estate asset by the entity, or on sale of the stake in said fiscally transparent entity holding the Luxembourg property ).
Finally, a specific notification is provided for opaque Luxembourg investment fund vehicles subject to the SIF, OPC and RAIF regime for the 2020 and 2021 financial years even if they have not received or realized property income during these financial years. .