The Luxembourg tax authorities have started issuing fixed late filing penalties of EUR 10,000 for non-compliance with property tax reporting obligations.
In light of this measure, fund managers of opaque Luxembourg investment fund vehicles are encouraged to ensure that their reporting obligations are met and, if not, to proceed as soon as possible before penalties are imposed. Recommended.
Real estate tax summary
The property tax was introduced by the 2021 Budget Law and its reporting obligations were clarified through an administrative circular issued by the Luxembourg Tax Authority on 20 January 2022. Property tax that must be declared and paid annually to the Luxembourg tax authorities.
An investment vehicle subject to this property tax is a Luxembourg tax payer and an investment vehicle with a separate legal personality from its partners.
- Collective Investment Business (UCI);
- Specialized Investment Fund (SIF); and
- Reserved Alternative Investment Fund (RAIF).
An exception applies to investment vehicles created in the form of limited partnerships (i.e.société en commandite simple” When “society en commandite speciale”, respectively SCS and SCSp) only if they own (directly or indirectly) real property in Luxembourg. This is a tax transparent vehicle (SCS, SCSp, société en nom collectif –SNC, civil society – spinal cord injury or von commune de placement – FCPs receiving or realizing income from real estate located in Luxembourg) are also subject to the above obligations and taxes as they are deemed to have been received or realized by a Luxembourg investment vehicle where the real estate income is opaque.
Please note that Luxembourg investment vehicles are not subject to the above regime and are in the form of fully taxable legal entities (e.g. société à responsabilité limitée – Sarl) are exempt from real estate taxation and similar to tax transparent Luxembourg investment vehicles (such as those set up as SCS or SCSp), except for notification obligations where applicable.
From 2021, opaque Luxembourg investment fund vehicles subject to this measure will be subject to property tax at a rate of 20% on all income derived from property located in Luxembourg.
- Rental income derived (directly or indirectly) from real estate property in Luxembourg.When
- Proceeds from disposals derived from such assets (either directly or indirectly through a tax transparent entity, disposal of real estate assets by an entity or interest in a tax transparent entity owning real estate in Luxembourg) by any of the following dispositions).
Finally, for non-transparent Luxembourg investment fund vehicles covered by the SIF, UCI and RAIF regimes for the 2020 and 2021 financial years, even if they have not received or realized any real estate income in that year, certain Notification is expected.