Real estate ownershipi Planning
In Luxembourg, urban planning is subject to both national and municipal laws and regulations.
At the national level, the Luxembourg government seeks to further intervene in the urban planning process by setting up four new urban master plans in 2018. The idea behind these master plans is to centralise the broad outlines of urban planning by selecting certain areas that are prioritised development areas.
At a local level, each municipality has its own general town planning scheme (PAG), which is considered to be set of regulatory requirements in graphic and written form, applicable across the respective municipality and dividing the municipal territory into various zones, stating for each zone:
- how the land is to be used, i.e., which types of use can be made of each plot of land (example: dwellings, economic activity, forest, etc); and
- the degree of land use, i.e., the development potential associated with each plot (e.g., the gross built-up surface area, number of houses, etc.).
General development plans are approved by the communal council, the Minister for Home Affairs and, as the case may by, by the Ministry of the Environment.
Specific town planning schemes execute and specify the mode and degree of land use of each zone or part of a zone in a municipality's PAG.ii Environment
The environmental administration manages contaminated and potentially polluted sites through a register of former landfills and contaminated sites.
This register has the following objectives:
- detect pollution issues where urgent intervention is needed;
- develop medium- and long-term analyses and decontamination programmes, taking into account priority intervention needs;
- have a planning tool to take into account the possible presence of contamination when carrying out projects or developing town planning schemes (e.g., PAG); and
- monitor the evolution of the state of the various sites listed.
Approximately 10,000 sites are currently listed on this register. Upon request, anyone can obtain information about a specific site.
As a general rule, the liability for any decontamination of polluted land has to be assumed by the last operator of the site. If the operator of a classified establishment decides to close down its activity, he or she has to file a declaration of cessation with the competent authorities, who will then decide on potential obligations to restore the site.
Such a decontamination obligation may also be triggered because of a change in the activity carried out on a plot of land on which a potentially polluting activity has taken place, or at the request of the Ministry of the Environment, when there are serious indications of pollution on the site.iii Tax
The direct sale of real estate through an asset deal is subject to a transfer tax of 7 per cent (6 per cent registration duty and 1 per cent transcription fee) while for office and commercial properties located in the city of Luxembourg, the transfer tax is fixed at 10 per cent.
The transfer tax is calculated on the purchase price, as indicated in the notarial deed of transfer and it may be adjusted by the competent authority (the Land Registration and VAT Authorities) if the sales prices does not correspond to the fair market value of the property. The transfer tax is usually paid by the purchaser.
Acquisitions of real estate are generally exempt from VAT, except in the case where both parties are subject to VAT and explicitly choose to opt in for the VAT regime by filing a VAT option form. In such a case, the applicable VAT rate (currently 17 per cent) is added on top of the sales prices and the transfer tax will be calculated based on this cumulative amount.
In case of a property sale before the completion of the works, the remaining works that have to be performed by the developer after the transfer of the property will be subject to VAT, although the buyer can opt for a reduced VAT rate of 3 per cent if he or she acquires the property for personal use.iv Finance and security
Real estate transactions are generally secured by a first-ranking mortgage granted in favour of the third-party lender. In rare cases, the debtor will also grant an irrevocable mortgage mandate in favour of the lender, whereby the debtor irrevocably authorises the lender to register a mortgage on his or her behalf.
The mortgage deed has to be signed in front of a notary public (subject to a few minor exceptions) and the inscription fees for the mortgage will amount to 0.29 per cent of the principal amount of the underlying receivable (0.24 per cent registration duty and 0.05 per cent inscription fees).
Conventional mortgages have to be renewed every 10 years to remain enforceable.
For more complex transactions, which are generally structured through a share deal, lenders do often require a more extended security package, including pledges over the shares of SPV owning the property, pledges over bank accounts or other receivables such as rent incomes or insurance policies.
Financial assistance issues may arise.