I. Real Estate Company in Luxembourg: concept

A Real Estate Company in Luxembourg is a business carrying on or the purpose of which under its articles of association is exclusively or predominantly the acquisition, management, use of and sale of real estate. A Real Estate Company in Luxembourg can be formed in the form of a corporation (as a Public Limited Company (PLC., Corp./SA); Limited Liability Company (LLC., Ltd./SARL); Partnership Limited by Shares (SCA) or Co-operative in the form of a Public Limited Company (SCOSA)).  The particular formation requirements will be determined by the legal form the said company takes.

II. Tax aspects

1. The taxation of income from the sale of real estate

In principle, gains made from the sale of real estate are taxed in accordance with the situs principle, namely where the real estate is situated.

2.  The taxation of gains on the sale of shares

In principle, gains made on the sale of shares of a Real Estate Company, which owns the real estate, are taxed in the country in which the seller is resident. If the Real Estate Company is a Luxembourg corporation, the gains on the sale of the shares shall be taxed in Luxembourg.

However, some of the new double taxation agreements (DTA's) which Luxembourg has agreed with many countries extend the situs principle to cover the sale of shares to Real Estate Companies  whose assets, directly or indirectly, consist of at least 50% real estate. In such cases, the gains on the sale of the shares are taxed at the location of the Real Estate Company rather than where the seller is resident. Consequently, such Real Estate Companies in Luxembourg are unable to make use of Luxembourg's preferential tax regime if the real estate is located outwith Luxembourg.

3. Two-tier company structure

However, the provisions permit exceptions to that effect meaning the extended situs principle does not apply to parent companies which are resident and the management of which is located abroad. In respect of a two-tier structure, gains from the sale of the shares of a Real Estate Company continue to be taxed where the seller is resident. Accordingly, if real estate owned by a resident Real Estate Company is to be held by a foreign corporation and shares in the resident Real Estate Company are to be sold, the tax liability remains with the foreign corporation. In this regard, the following procedure has developed in practice in Luxembourg:

Firstly, a Luxembourg corporation is formed in the form of a SOPARFI-Financial Holding Company. The said Holding Company is particularly attractive due to its tax status whereby it benefits from the „inter-corporate privilege“ under the parent subsidiary Directive and is exempt, in accordance with certain requirements, from corporate taxation and withholding tax. The SOPARFI-Financial Holding Company is formed  in the legal form of a Public Limited Company (PLC., Corp./SA) in Luxembourg which is preferred herein due to the ability to issue bearer shares which are easily transferable.  The Luxembourg SOPARFI-Financial Holding Company forms or acquires shares in the capital of an EU Real Estate Company which are subsequently sold.  The resulting gains are subject to taxation in Luxembourg.  Within this framework, dividends and the sale proceeds and liquidation proceeds resulting from investments remain exempt from tax. The SOPARFI-Financial Holding Company in Luxembourg will finally be liquidated and the liquidation proceeds subsequently distributed free from withholding tax.

LEGAL and TAX ADVICE and SUPPORT

Our lawyers and tax experts stand ready to advise you personally and free of charge during the decision-making process and throughout the  formation/incorporation/setting up process of a Real Estate Company in Luxembourg.

Please contact us by telephone through the following telephone number

00352 250 345 27

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FORMATION/INCORPORATION/SETTING UP PROCEDURE

For the formation/incorporation/setting up of a company in Luxembourg, the following steps require to be taken:

  • The choosing of the legal form and the company name
  • The drawing up of the articles of association 
  • The opening of a company bank account
  • The paying in of the company capital
  • The recording of the articles of association by a notary
  • The registration and publication of the articles of association
  • If applicable, the submission of a trade licence application to Luxembourg's Ministry of Small and Medium-sized Businesses (autorisation d ́établissement)
  • Value-added tax (VAT) registration with Luxembourg's Tax Authority for Direct and Indirect Taxation