The normal VAT (Value-Added Tax) rate is 17 %. To stimulate the building of housing, the State offers a super-reduced VAT rate of 3 % on the construction and renovation of housing, provided the property is intended as a main residence:
- either by direct application of the super-reduced rate. In this case, eligible work carried out by professional tradesmen is directly invoiced at the rate of 3 %;
- or by reimbursement of the difference between the normal VAT rate and the reduced rate (rebate). In this case, the person who carried out the eligible works or had eligible work done may apply for a VAT rebate from the Registration Duties, Estates and VAT Authority (Administration de l'enregistrement, des domaines et de la TVA – AED).
The total amount of the tax benefit resulting from the application of the super-reduced rate of 3 % must be no more than EUR 50,000 per newly built and/or renovated home. The EUR 60,000 threshold continues to apply:
- to work for which the application was lodged before 1 November 2012;
- to work for which the application was lodged between 1 November 2012 and 1 January 2013, provided the actual start date of the work was no later than 31 March 2013.
Any entitlement to a VAT rebate will lapse 5 years after 31 December in the calendar year to which the tax to be repaid pertains.
Who is concerned
The favourable tax scheme is applicable to any natural person residing in Luxembourg who builds or renovates a dwelling as a main residence.
A 'dwelling' should be understood to mean any building or any part of a building representing a separate unit (e.g. a flat or apartment) that may be occupied as a main residence, including the associated internal communal areas (such as a garage, a cellar, etc).
To benefit from the favourable tax scheme, the dwelling must be used as a main residence:
- either directly by the applicant themselves;
- or indirectly by a third party.
A building used as a main residence and for other purposes as well may still be eligible for the tax benefit, as long as the surface area allocated for use as a main residence is more than 75 % of the total surface area. If that surface area is less than or equal to that proportion, the tax benefit is only awarded in proportion to the part that serves as a main residence.
The works undertaken to create or renovate a dwelling must be included on the list of types of work eligible for the 3 % VAT rate.
As regards the creation of a dwelling, the eligible work includes:
- the construction of a dwelling, including that of a garage or parking space (provided they form a unit with the dwelling that serves as the main residence), as part of the performance of a sales agreement for buildings to be constructed and/or a construction or industrial lease agreement;
- construction works carried out either fully or partially by the owner themselves, or with the help of various tradesmen;
- the transformation, into a dwelling, of an existing building or part thereof, previously used for other purposes (e.g. the transformation of an office building into a residential one);
- the extension of an existing dwelling by adding or extending rooms.
Also eligible are garages and parking spaces either attached to or separate from, but in proximity to the dwelling, on condition that they are used or rented along with the residential property by the same person.
However, only those operations carried out (construction, transformation or extension) up to the stage of the enclosed structure with a finishing stage are eligible, including covering of floors, ceilings and walls and connecting the building to the following public infrastructures: piping, water supply, electricity, gas, communications network, urban heating and road network.
As regards the renovation of a dwelling, eligible types of work (e.g. construction and demolition of internal separating walls, addition of new doors or windows, filling of existing doors or windows) include:
- substantial improvement work carried out in the wake of a home acquisition. The aforementioned work must be completed within 5 years of the acquisition. The term 'acquisition' includes both purchases and non-monetary acquisitions, either between living people or through the death of a party (e.g. donations or inheritance);
- substantial improvement work on a dwelling built at least 20 years before the start of that work. The work must be completed within 2 years. Periods of renovation may come one after another, with or without intervals between them.
How to proceed
Types of construction/renovation works
Works eligible for reduced-rate VAT
- excavation works;
- load-bearing components contributing to the building's stability or solidity;
- elements contributing to the enclosure, coverage and watertightness of the structure, including screed;
- plastering/rendering of the building;
- steps and ramps;
- ceilings and fixed partitions;
- portions of pipework, tubes, ducts and sheaths of all kinds lodged inside the walls, ceilings or floors, or contained in the mass of coating, as well as those buried in the ground, connecting the property to the public infrastructures;
- work to install flashing;
- lifts and goods lifts in apartment buildings, and in individual houses;
- structures and frames for doors, windows and glass partitions;
- sanitary equipment, with the exception of furniture and mirrors;
- doors, windows, glass partitions and conservatories;
- installation of heating, controlled ventilation and solar-thermal collectors;
- electrical installation;
- ironwork and locks in the building;
- all kinds of coatings for walls, floors and ceilings;
- indoor and outdoor painting, including wallpapering.
Work excluded from reduced-rate VAT
- household equipment (including fitted kitchens), with the exception of heating stoves;
- internal carpentry and joinery other than stairs, ramps, doors and windowsills;
- special technical equipment, such as the installation of an alarm system;
- furnishing of the surrounding areas, with the exception of the direct access route to the dwelling and to the garage;
- notaries', architects' and consulting engineers' fees;
- air-conditioning systems and 'wellness' devices;
- internal blinds and curtains;
- photovoltaic (PV) installation;
- other works not explicitly mentioned on the list of work eligible for the tax benefit.
The procedure for the reimbursement of VAT remains the same for:
- purchases of construction materials, i.e. when the owner themselves carries out work without engaging the services of various tradesmen;
- sales of new buildings which do not yet have a designated purpose and sales agreements for buildings yet to be constructed.
Any person who has carried out eligible building or renovation works, or has had such works carried out, without enjoying direct application of the 3-percent rate, may apply for reimbursement of the VAT, on condition that:
- the application pertains to an overall amount (excl. VAT) greater than than EUR 3,000, and covers a minimum period of 6 months;
- the expiry date for eligibility for reimbursement of VAT has not yet been reached;
- the total amount of the VAT benefit is no more than EUR 50,000 per built and/or renovated residence;
- each invoice, excluding VAT, exceeds EUR 1,250.
To claim reimbursement, the applicant must submit the following to the Registration Duties, Estates and VAT Authority:
- the VAT rebate form, completed and signed;
- the invoice summary form (interactive version with option to add rows or static version for mobile devices), accompanied by the original invoices and proof of payment. The original invoices must indicate the location of the dwelling being built or renovated;
- import documents showing payment of the tax, if they were issued or established;
- a copy of the notarial deed in the case of new builds which have not yet been designated for any particular use.
Invoices for the purchase and delivery of equipment or services rendered by businesses established outside of Luxembourg may only be reimbursed if the foreign-based company has a Luxembourg VAT number.
Direct application of the reduced rate of 3 %
In principle, the tradesman (builders, electricians, heating engineers, etc. carrying out the work should apply the 3 % rate directly for building and renovation works, observing the established limits and conditions.
It is therefore up to the tradesman to take the necessary steps – notably by filing an application for approval with the Registration Duties, Estates and VAT Authority – so that they can apply the reduced rate of 3 % directly to a specific item of works described in the application.
The supplier is required to produce:
- details relating to their business;
- details relating to their client and to the building in question, completed by the owner (especially if the owner intends to let the building out to a third party);
- a brief summary description of the nature of the works to be carried out, and their approximate cost.
Without that approval, the business is required to apply the tax rate which is usually applicable in that field, and the owner must go through the reimbursement procedure to secure, if applicable, the reimbursement of the VAT paid beyond a rate of 3 %.
The approval application must be signed by the supplier and countersigned by the client.
In practice, the supplier sends the client the application for the reduced rate with the quote, so that the client can approve it, complete it, and sign it.
Repayment of the VAT to the administration
Eligibility for all of the VAT benefit is now subject to the condition that the dwelling be used as a main residence for a period of 2 years. If, during that time, the premises are used for other purposes, or are not used at all, the rationale for the tax benefit ceases to exist. In that case, it must be repaid in full (with legal interest accrued since the date of its granting), which is tantamount to the work being billed with the normal VAT rate (17 %). The recipient of the tax benefit alone will be responsible for this repayment.
Consequently, it is in the interests of the beneficiary, if the property is sold during the repayment period, to make sure of the use the buyer intends to make of it. In any event, the tax benefit obtained must always be repaid in full, if the dwelling for which it was obtained has not been designated for any particular use by the beneficiary before being resold.
Only a failure to designate the property for a given use, or the changing of that designated use, give rise to the repayment procedure. The sale of the property is not taken into consideration.
This regulation applies to all changes in use occurring before 23 April 2005, even if the tax benefit was awarded for works completed before that date.
Forms / Online services
Who to contact
Registration Duties, Estates and VAT Authority1-3, Avenue Guillaume
B.P. 31 L-2010
Phone : (+352) 247 80800Fax : (+352) 247 90400