On 30 May 2022, the Administration des Contributions Directes published a circular concerning the special real estate allowance [1] (the “Circular”). The Circular provides for some guidance on the computation of a special real estate rebate introduced by the Law of the 19 December 2020 [2] and applicable as from 1 January 2021 [3] (the “Allowance”).

In a nutshell, article 32ter of the Luxembourg Income Tax Law (“LITL") provides for an accelerated amortization rate of 4%4 for buildings or parts of buildings used for rental housing, where such immovable property is completed within five years from the beginning of the operating year (i.e. 2021). When accelerated depreciation is applied in a given tax year, the Allowance provides for an additional deduction equal to 1% of the value used as a basis for the accelerated depreciation (hence excluding the cost of the land). Additionally, the Allowance is capped at EUR 10,000 per year.

The Circular specifies that the Allowance should not be deducted at the stage of the determination of the categorical income (revenus catégoriels), but should be deducted at the level of the taxpayer's taxable income.

The Allowance is only available to natural persons. Hence, companies listed in article 159 LITL cannot benefit from it.