Luxembourg Tax News 2014-16 | KPMG | LU
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Luxembourg Tax News 2014-16

Luxembourg Tax News 2014-16



Head of Tax

KPMG in Luxembourg


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Transfer of gains only until the end of the year

On 13 June 2014, the Luxembourg Tax Authorities published a Grand-Ducal Regulation of the Luxembourg Income Tax Law (hereafter “LITL”) n° 102 al. 8 of 13 June 2014 (hereafter “GDR”) repealing the Grand-Ducal Regulation LITL n° 102 al. 8 of 17 June 1992.

The aim of this GDR is mainly to abolish the transfer of gains arising from the sale of improved or unimproved real estate property included in the taxpayer’s private net wealth.

In this newsletter, we will briefly comment the suppression of this tax provision and the new Circular LITL n°102/1 of 25 July 2014 (hereafter “Circular”) issued by the tax authorities in respect of exchange of real estate.


The current regime until 31 December 2014

The regime foresees that a transfer of gains arising from the sale of improved or unimproved real estate property belonging to the taxpayer’s private net wealth is available under the following main conditions:

  • The owner should have acquired the former building at leat 2 years before the sale;
  • The owner should purchase a new building;
  • The owner should rent out this new building;
  • The value of the transfer of gains cannot exceed the capital that the owner has reinvested in this new building;
  • A maximum of ½ of the transfer of gains value can be reinvested in the purchase of a land for setting up the new building;
  • The transfer of gains is allowed within 2 years after the sale of the former building.

In case all the above conditions are met, the transfer of gains could apply (except for a few special cases). In fact, the gains transferred reduce the purchase price of the new building.

Consequently, the capital is not definitively exempted but only deferred until the sale of the new building occurs.


Questions from the European Commission

In 2011, the European Commission has started to closely review this GDR. In fact, this GDR was granted only for the sale of a real estate located in Luxembourg.

Therefore, the European Commission, further to an infringement procedure n°2011/4104 followed by a reasoned opinion dated on 20 February 2014, concluded that this provision was not in line with the principle of free movement of goods and persons within the European Union (article 258 of the Treaty on the functioning of the European Union).

In fact, based on the European Union regulation, the benefit of this tax provision has to be offered also to private investors willing to reinvest covered capital gains into a real estate, which can be located outside of Luxembourg.

Therefore, the Luxembourg government had 2 choices in this respect: either amend the GDR or repeal it.


Decision from the Luxembourg government to suppress this provision

The Luxembourg government has decided to repeal this provision, considering on one hand that the related financial impact would not be significant for taxpayers, and on the other hand, that the set up of a public body in charge of supervising and controlling the extension of the regime to real estate situated outside Luxembourg would likely be cumbersome.


Application of the Grand Ducal Regulation transfer possible until end of 2014

Even if this GDR has been repealed, this provision will be in force until 31 December 2014.

Therefore, any taxpayers who have already, or who will complete a new building still in 2014 or within the 2 following years (potentially a total of 4 years under conditions and upon request), will still be able to apply for the transfer of gains on properties sold until the end of 2014.

Based on a case by case analysis of the conditions mentioned above, it might be interesting for taxpayers to apply for this tax provision, if:

  • The transfer of the capital gains realized on the sale of the former building, on a new building given into rent, allows to postpone the taxation of these capital gains.
  • Consequently, the taxpayer will be able to differ the taxation of this gain in order to potentially offset it on losses of other category of income in the future.
  • The delayed taxation on the capital gain might offer the opportunity to fully reuse the flat deduction of EUR 50.000 for single taxpayers (i.e. EUR 100.000 for coupled taxed jointly) which is available once over a 11 years’ period. This deduction does not apply on the sale of the main residence as the respective capital gains are tax exempt.


New Circular in respect of exchange of real estate

The article 102 al 9 of the LITL mentioned that the exchange of land pursuant to a consolidation carried out in accordance with the law shall not be deemed a realization of the land pursuant to this article, even if the exchange occurs with a balancing payment in cash. However, if the balancing payment received exceeds the value of the land received in exchange, the exchange shall be deemed a realization.

The new Circular clarifies, among others, that even if the land is owned by an individual in its private patrimony, an exchange of land pursuant to a consolidation carried out in accordance with the article 63 of the modified law of 19 July 2004 in respect of urban development is exempted from capital gains taxation. This applies only on the basis that the balancing payment received does not exceed the value of the land received in exchange.



The new Circular shows the Luxembourg government’s willingness to develop the Luxembourg real estate market.

The repeal of the GDR may offer some tax opportunities until the end of the year in respect of the transfer of gains, which might fulfill the GDR requirements.

KPMG Luxembourg provides all the necessary assistance you may require to utilize the provisions of the GDR in the most efficient manner until the end of 2014.


For further information, please do not hesitate to contact us.






Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough

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