Austerity measures affecting the VAT on real estate: how does this work? (rtl.lu)

One of the various measures that were discussed earlier this week in order to reduce the budget deficit is about the VAT on real estate. As per this provision, the maximum amount that people can get back is reduced from 60’000 to 50’000 €. Frank Kuffer explains once more the impact that this measure will have on the VAT applied on real estate.  

Up to now everyone who decided to build a house where to settle respectively to rent has enjoyed the return of 60’000 € under the condition that this property was going to be used for residential purposes and not, for example, to host a shop or any other commercial activity. 

Normally the company responsible for building that real estate submits an application to the tax office in order to benefit from the so-called 3% super rate. Such authorization is provided within one or two weeks; once this is done, the building company can invoice all works to its client with the addition of a 3% VAT, which means the company does not have to continue the work and ask for the VAT at a later stage.

This is the case for example if you buy a house whose construction is already completed. By the time the transaction is completed, the buyer pays a price that includes 15% VAT that he afterwards asks to be returned back, something that takes about 10 months. In principle, as a result of this process, he shall get back 12% but this is finally not the case.   

An example: you buy an apartment whose price stands at 400’000 € plus 15% VAT, which makes it finally 460’000 €. You don’t get back 12%, i.e. 48’000 €, because once the transaction is registered additional costs – like for example those for the land where the property was built, or the work and consultancy provided by the architect or agent – are to be taken into account. This means the real price of the apartment is considered as 300’000 € and hence you will get back only 36’000 €.  

Anyway, the maximum amount you could get back stood up to now at 60’000 €.

This threshold will now be reduced to 50’000 €. The “Administration de l’enregistrement et des domaines” has to check how they will technically apply this new rule, especially in the transition period as people are normally more flexible if they can get something than if something is being taken away.

At the moment you can buy an apartment for up to 500’000 € thereby enjoying a 3% VAT and for everything that exceeds this threshold, a 15% rate will be applied. If the reduction of the maximum plafond is eventually applied, this means that you may apply a 3% VAT rate for the price of the apartment only up to 416’000 €.

This VAT advantage is applied differently than the tax credit on registration fees which is only applied once, whereas the reduced plafond from 60 to 50’000 € can be used for any home you buy for residential purposes.

Additional details as well as the forms you need to use are available under this link: www.aed.public.lu