International tax advice

Real Estate Company

The Luxembourg Company - investment vehicle used by professional, institutional or private investors to acquire, hold or manage real estate properties in Luxembourg or abroad.  

Indeed, within the frame of double tax treaties, Luxembourg exempts the income derived from real estate situated abroad. The investor(s) incorporate a Luxembourg company (generally set up in the form of a public limited company or a private limited company) which acquires the real estate abroad. 

The Luxembourg company , when receiving real estate incomes, is then taxable on the ground of the country in which the real estate is situated under deduction of the costs associated to the management of the real estate. The profit of this management are then taxable in that country but fully tax exempted in Luxembourg. 

The investor(s) wishing to acquire real estate abroad often consider favorably the incorporation of such a Luxembourg company  for many legal and fiscal reasons among which :

The tax treaty between France and Luxembourg provides a double non taxation for income derived from real estate owned by Luxembourg companies in France (without permanent establishment), either on profit and on capital gains on disposal... [read more]

Amendment to Convention between Luxembourg-France

A second amendment (Avenant)  to the double tax treaty between France & Grand-Duchy of Luxembourg aiming to avoid double taxation and establishing the rules of mutual administrative assistance in direct income taxes and fortune taxes signed in Paris this 1st of April 1958, has been signed in July 2006.

The analysis on this Avenant provides : the date from which modifications are to be expected, in which country the taxation could arised and the method of attributing the taxation rights, the method of determining the date when the Avenant will be effective, and , of course, the  opportunities which may be addressed during this period.  

The various tax consequences for the Luxembourg companies holding real estate in France, their implication for their shareholders, the real estate and for the SCI immobilière Française, the possible tax exemptions, deductions and the method of calculation of the taxable base,...

Moreover, analysis address the various Solutions suggested by the Avenant and these new rules : the statu quo, the treatment of latent capital gains, the villas-companies , … but also the solution of re-financing by a Luxembourg company, the real estate, by a third party, a credit institution or another entity, and the methods used within the frame of the new law on securitisation since its introduction in 2004. 

A special chapter will be especially reserved to new acquisition and advantages linked to the fiscal Transparency of SCI immobilières confirmed by the Avenant for these hybrid entities held by non resident in comparison with the holding by (eg) Belgian or English resident (where tax Authorities often consider that  income received from these companies must be treated as dividends – so twice subject to taxation…). 

Modification in the Convention between Luxembourg-France

The Law of the 21st of November 2007 has approved the Second Avenant, signed in Luxembourg, the 24th of  November 2007, to the Convention between the Grand-Duchy of Luxembourg & France, signed in Paris, the 1st of April 1958. This Second Avenant has come into force the 27th of December 2007. The application of the Treaty will be effective from this 12st of January 2008.

Furthermore, France has just modified it regulation on the "Tax of 3%" applicable on the value of the real estate.
However, in 2008, an administrative instruction has completely modified the obligations of foreign companies holding a real estate in France

(Mémorial A - N° 213 du 7 décembre 2007, page 3698)
Source : Administration des Contributions Directes du Grand Duché de Luxembourg

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