Costs During a Purchase

1) What is a Sale in Future State of Completion (VEFA)?

A “VEFA” is a new construction, characterized by the gradual transfer of ownership to the buyer and staged payments according to the progress of the work. The buyer becomes the owner progressively. Construction duration is generally 1 year for houses and 24 to 27 months for residential buildings.

2) What is the agency commission during a sale?

The right to commissions, and therefore the arrangements agreed upon between the parties, should preferably be put in writing in a document called a “sales mandate” or “option”. This serves as proof in case of disputes regarding the commission amount. Our agency’s commission is: 3% + applicable VAT (currently 17%).

3) What is the registration duty?

Registration duty is an indirect tax levied on legal transactions and mainly on transfers of assets. (source: www.aed.public.lu) It amounts to 7% on existing property.

Examples:

• Existing house/apartment: 7% of the sale value (base rate of 6% + transcription rate of 1%)
• VEFA house: 7% on the land + 7% on what has already been built
• VEFA apartment: 7% on the land share (the portion of land you own) + 7% on what has already been built

4) What is the tax credit? (Bëllegen Akt)

The tax credit on notarial deeds or “Bëllegen Akt” is a tax provision introduced by the law of July 30, 2002, amended by the law of October 22, 2008 (“Housing Pact”), further amended by the law of December 21, 2012 (art. 8), and by the law of May 16, 2023 (art. 6) (following the Tripartite meeting of March 7, 2023 and the signing of the “Solidaritéitspak 3.0” agreement).

Principle

When acquiring real estate for personal residence, the beneficiary is entitled to a reduction on registration and transcription duties normally due. In all cases, a minimum fee of €100 is charged by the administration for registration.

No conditions related to wealth, property value, cadastral income, or buyers’ income are taken into account.

Amount

The maximum reduction currently amounts to:

• €30,000 for a single person
• €60,000 for a couple

This new ceiling applies with retroactive effect from March 7, 2023.

For notarial deeds signed between March 7, 2023 and May 17, 2023 (Circular No. 817 of May 25, 2023), and in case of an additional tax credit to be received, the Registration Administration has provided a reimbursement procedure directly to the buyer via a:

Reimbursement request form

Which properties?

This provision applies to the acquisition of housing in the case of:

• existing properties (apartments, duplexes, houses, villas, etc.);
• Sale in Future State of Completion (V.E.F.A.); land transactions;
• purchase of building land with the intention of constructing a house within 4 years.

Conditions

The following conditions must be met:

• be a natural person,
• reside in the Grand Duchy (registration with the local municipal population office),
• commit to personally occupying the property for two years,
• not have previously benefited from this provision.

For more information:

Registration, Domains and VAT Administration

Value Added Tax (VAT)

5) What should be known about VAT (Value Added Tax)?

There are two VAT rates: the standard rate (17%) and the super reduced rate (3%).

You are entitled to the application of the super reduced rate of 3% on a new property (VEFA; apartment or house) used as your primary residence: you must live in the property yourself for at least 2 years after registration in the relevant municipality.

6) What VAT is payable for existing properties?

VAT is only payable on NEW properties (not on existing ones) and only on the construction, not on the land.

Most renovation and transformation works on existing properties that are used or intended as a primary residence also benefit from the reduced rate of 3%.

7) Conditions for the super reduced VAT rate (3%)? (Part 1)

The property must serve as a primary residence (legal domicile). Secondary residences and premises used for professional purposes are excluded. In case of mixed use (primary residence and other), the tax benefit is fully granted provided that use as a primary residence exceeds three-quarters of the total surface area; otherwise, the tax benefit is calculated proportionally to the surface area used as a primary residence.

8) Conditions for the super reduced VAT rate (3%)? (Part 2)

The super reduced rate (3%) applies to two categories of work:

• creation of a dwelling (construction, extension, transformation)
• substantial improvement works (renovation) on a dwelling already completed and finished within 5 years of acquisition.

9) Conditions for the super reduced VAT rate (3%)? (Part 3)

The cap on the VAT savings difference between the two rates is a maximum of €50,000 per property.

Example: apartment / house cost: €1,000,000

VAT 17% = €170,000

VAT 3% = €30,000

Therefore, you must pay €170,000 – €50,000 (maximum cap) = €120,000 instead of €30,000.

The same applies to renovation works:

Each property can benefit from a 3% VAT rate on renovation works up to a maximum saving of €50,000 once during the lifetime of the property.

10) What is the municipal surcharge?

When carrying out a real estate transaction involving a COMMERCIAL property (sale, exchange, donation, etc.), a tax equal to 50% of the registration duties must be paid to the municipal administration. It is only due if the property sold is of a commercial nature and is located within the territory of Luxembourg City.

Example of Municipal Surcharge Calculation: sale of a commercial property (shop) in Luxembourg. Price stated in the deed: €2,000,000. Registration duty: €2,000,000 × 6% = €120,000. Transcription duty: €2,000,000 × 1% = €20,000. Municipal surcharge 50% = €120,000 × 50% = €60,000. Total duties / transaction: €200,000.

Energy Performance Certificate

11) What is the “Energy Performance Certificate”?

The Energy Performance Certificate (EPC), or energy passport, is a quality label that defines the energy performance of a residential building. The certificate provides information on the energy efficiency of residential buildings and allows comparison with other residential buildings. Thus, even without technical knowledge, consumers can assess the energy quality of a residential building. (Source: myenergy.lu)

12) The “Energy Passport” (Energiepass) (definition)

The energy passport is a regulatory requirement. Therefore, no subsidy is granted for its preparation. The establishment of the Energy Performance Certificate follows specific defined rules. It is valid for 10 years from the date of issuance. The preparation of an energy passport and its results do not entail any direct obligation to carry out energy renovations. (Source: myenergy.lu)

13) The “Energy Passport” (Energiepass) (continued definition)

1. Energy performance class: the building’s energy performance class is determined based on the primary energy consumption index. This index takes into account the thermal envelope, the building’s technical installations, and the environmental impact of the energy source used.
2. Thermal insulation class: the thermal insulation class is determined based on the heating energy demand index. This index considers the thermal quality of walls, roofs, floors, and windows, as well as the type of construction, quality of execution, and building orientation.

14) The “Energy Passport” (Energiepass) (categories)

Performance level: classification ranges from A (best class) to I (lowest class). (e.g., Passive house – classes < A, low-energy house – classes < B, etc.)

Validity of the Energy Passport:

• 10 years from the date of issuance

Purpose:

• inform future owners/tenants about the energy condition of a property
• encourage owners, based on the result, to invest in energy renovation of their property

15) Is the Energy Passport mandatory?

Energy Passport obligations:

• mandatory for any new construction, extension, modification, and substantial transformation (>75 m³)
• mandatory in case of change of owner/tenant (if the building does not yet have an energy passport)
• the request is made by the owner or their representative
• costs are borne by the applicant
• each owner receives the original passport (the tenant has the right to request and receive a copy)

16) “Energy Passport”: minimum class for constructing a new residential building?

Since January 1^st, 2017, every new residential building constructed in Luxembourg must meet the standard of a Nearly Zero Energy Building (NZEB). In general, NZEB corresponds to energy classes AAA. (Source: myenergy.lu)

Spatial Planning

17) What is a “PAG”?

The General Development Plan (PAG – Plan d’Aménagement Général) defines the future use of land, for example whether it is permitted to develop housing, offices, commercial spaces, or green areas, while also determining building dimensions. It is the key instrument of urban development. Indeed, it guides the development of the city and its districts while creating good living conditions and taking existing structures into account. (Source: vdl.lu)

Each municipality with more than 10,000 inhabitants has a General Development Plan (PAG), and construction or transformation projects must comply with it.

18) What is a “PAP”?

The Detailed Development Plans (PAP – Plans d’Aménagement Particulier) aim to specify and implement the General Development Plan (PAG) while respecting the land use type and intensity defined in the PAG.

On one hand, the PAP establishes urban planning and subdivision rules for land that is not yet serviced at the time of its creation. On the other hand, the PAP sets urban planning requirements for land that is fully serviced in already urbanized areas. These PAPs are prepared and submitted for approval to the relevant municipalities by the developer or their architect/urban planner. The PAPs address the main urban planning guidelines set out in the applicable PAG.

Purchase and Sale

19) What is the completion bank guarantee?

For new properties, i.e. properties that are to be built or are under construction, there is a completion bank guarantee. By law, this guarantee must be provided by a bank or an insurance company on behalf of the developer: in the event of the developer’s bankruptcy during construction, the bank or insurance company ensures that the work is completed as agreed.

Explanation:

During construction, a developer may go bankrupt. In such a case, the buyer may wonder who will complete the work. At that point, the bank or insurer that issued the completion guarantee will finance and manage the completion of the construction, or reimburse buyers for the amounts already paid.

20) What are the ten-year and two-year guarantees?

These are guarantees provided for newly completed constructions. Once the work is finished, a Grand Ducal regulation requires the developer to provide two guarantees concerning proper execution and quality of the work carried out:

Ten-year guarantee: a 10-year guarantee covering the “structure” of the building from the handover of the keys. (Handover of keys: when the owners take possession of the property at the end of the works).

Example: if there is a problem affecting structural elements of the building, the developer must ensure proper repair/restoration of these elements, provided that the defects are identified within the first 10 years after handover.

Two-year guarantee: a 2-year guarantee covering “finishing works” (workmanship, materials, and finishing elements) from the handover of the keys.

Example: if defects are found in non-structural elements of the building, the developer must ensure proper repair/restoration of these elements, provided that the defects are identified within the first 2 years after handover.

21) Does the preliminary agreement constitute a sale?

Any preliminary agreement signed by both parties constitutes a sale, subject to approval by the financial institution (suspensive clause); failing this, the agreement becomes null and void without cost to either party.

Explanation: If you sign a preliminary sale agreement but your bank does not grant you the loan required to finance the property, the agreement is cancelled without any cost for either party.

22) What documents are required for a preliminary sale agreement?

• Preliminary sale agreement
• Energy performance certificate
• Anti-money laundering document
• Copies of identity cards
• Certificate of residence

23) What documents are required for purchasing a Sale in Future State of Completion (VEFA)?

• Preliminary contract
• Specifications document
• Plans
• Price offer
• Anti-money laundering document
• Copies of identity cards
• Certificate of residence

24) What is money laundering?

Money laundering is the process of concealing, by any means, the origin of funds obtained illegally through criminal activities (e.g. arms trafficking, prostitution, drug trafficking, corruption, extortion, etc.) in order to reinvest them in legal activities. It also undermines the integrity of legitimate financial systems and institutions and provides organized crime with the funds needed to carry out further criminal activities.