Impact of the law implementing the tax reform 2017 adopted on 14 December 2016 (subject to confirmation by the Luxembourg Conseil d’Etat that no second hearing is required) on leases

From 1 January 2017, the obligation to register leases is abolished but is still possible on a voluntary basis. In practice, this legislative change results in an abolition of registration tax when the conditions of the right of option to VAT are not fulfilled (tenant not subject to VAT) for leases under 9 years.

By contrast, leases of more than 9 years shall still be registered even after 1 January 2017 insofar as the right of transcription is not abolished for long-term leases (for instance, emphyteutic leases). For leases of more than 9 years or for leases under 9 years registered voluntarily, the registration tax remains 0.6% (where the lessor and the tenant have decided to benefit from the VAT exemption of the lease) or € 12 (when the parties have opted for the submission of the rents to VAT).

Until 31 December 2016, all leases, irrespective of their duration and nature, must still be registered within 3 months with the Administration de l’Enregistrement et des Domaines. For those leases signed before 31 December 2016, the amount of the registration tax is 0.6% on cumulative rents over the duration of the lease (without VAT option) or € 12 (with VAT option).

For more information on the impact of this law on Luxembourg real estate, please contact Elisabeth Adam, Partner, or Stéphanie Pautot, Counsel.