LLuxembourg tax authorities issue circular providing guidance on the special real estate allowance

LU Law

On 30 May 2022, the Administration des Contributions Directes published a circular concerning the special real estate allowance [1] (the “Circular”). The Circular provides for some guidance on the computation of a special real estate rebate introduced by the Law of the 19 December 2020 [2] and applicable as from 1 January 2021 [3] (the “Allowance”).

In a nutshell, article 32ter of the Luxembourg Income Tax Law (“LITL") provides for an accelerated amortization rate of 4%4 for buildings or parts of buildings used for rental housing, where such immovable property is completed within five years from the beginning of the operating year (i.e. 2021). When accelerated depreciation is applied in a given tax year, the Allowance provides for an additional deduction equal to 1% of the value used as a basis for the accelerated depreciation (hence excluding the cost of the land). Additionally, the Allowance is capped at EUR 10,000 per year.

The Circular specifies that the Allowance should not be deducted at the stage of the determination of the categorical income (revenus catégoriels), but should be deducted at the level of the taxpayer's taxable income.

The Allowance is only available to natural persons. Hence, companies listed in article 159 LITL cannot benefit from it.

For more information and examples, please refer to the relevant circular cited above by clicking on the hyperlink below.

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1 Circulaire du directeur des contributions L.I.R. n° 129e/1 du 30 mai 2022
2 The Allowance has been introduced by the 2020 budget law dated 19 December 2020, which has been inserted in article 129e LITL
3 Article 129e LITL
4 Such accelerated depreciation rate was reduced further to the 2020 budget law dated 19 December 2020​​​