• Service: Tax, Global Mobility Services, Global Compliance Management Services, International Tax
  • Type: Regulatory update
  • Date: 8/29/2014

Luxembourg - Transfer and deferral of real estate-related gains 

August 29:  Circular LITL n°102/1 (25 July 2014) was issued by the tax authorities in Luxembourg concerning a regime that allows for the transfer and deferral of gain with respect to certain real estate transfers.

The July 2014 guidance effectively repeals a regime that allows a taxpayer to transfer gain from existing real property being sold by the taxpayer to new property being purchased—under a system that is similar to a like-kind exchange allowing for the deferral of gain.

Taxpayers who have already, or who will, complete a new building transaction in 2014 or within the following two years (potentially a total of four years under certain conditions and upon request) may still be able to apply for the transfer / deferral treatment for gains on properties sold until the end of 2014.

Deferral regime

The current regime allows for the transfer and deferral of gain that otherwise would be recognized on the sale of improved or unimproved real estate property that is part of the taxpayer’s “private net wealth” if:

  • The owner acquired the transferred building at least two years before the sale.
  • The owner purchases and rents out a new building.
  • The value of the gains transferred from the old building cannot exceed the capital amount that the owner reinvests in the new building.
  • There is a cap on the maximum amount of one-half of the gains that can be reinvested in the purchase of land for a new building.
  • The transfer / deferral of gains is allowed within two years after the sale of the former building.

If all conditions are met, the treatment allowing a deferral / transfer of gains may apply (except in a few special instances).

If the deferral regime applies, the amount of gains transferred reduces the purchase price of the new building.

Consequently, the capital is not definitively exempted from tax, but only deferred until there is a sale of the new building.

Read an August 2014 report [PDF 137 KB] prepared by the KPMG member firm in Luxembourg: Transfer of gains only until the end of the year!

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