The principle
The standard rate of value added tax applying to building works is seventeen per cent.
In order to stimulate the creation of housing, the State subjects construction and renovation works on a dwelling to the super-reduced rate of three per cent, provided it is used as a main residence.
The framework is set by a grand-ducal regulation of 2002, which determines the limits, conditions and implementing arrangements.
The fourteen-point gap applies to the whole of the eligible works, which explains the scale of the benefit.
| Element | Content | To check |
|---|---|---|
| Reduced rate | Three per cent on eligible works | Eligibility of the works |
| Standard rate | Seventeen per cent | Items excluded from the reduced rate |
| Routes to obtain it | Direct application or refund | The choice is made upstream |
The three conditions
They are cumulative, and each is the subject of an article in this branch. A single missing condition removes the reduced rate.
Use as a main residence, the central and most checked condition, covered in the article on main residence.
The nature of the works, creation and renovation not following the same rules, covered in the article on creation and renovation.
Observing the ceiling, the benefit being limited per dwelling, covered in the article on the ceiling and its exhaustion.
A fourth condition concerns the procedure itself, approval having to be obtained before works begin.
The two routes to obtaining it
They are not equivalent, and the choice is made upstream or not at all. The two routes differ in their cash-flow effect.
Direct application. Eligible works are invoiced directly at the super-reduced rate, after approval obtained by the professional from the competent administration. This is the normal route.
Repayment. The works having been invoiced at the standard rate, the difference is then claimed from the administration.
The first requires anticipation, the second a cash advance.
The right to restitution is subject to a limitation period, running from the end of the calendar year concerned. Waiting therefore risks a definitive loss.
The approval procedure is detailed in the article on obtaining approval.
What the scheme does not cover
Four limits, often discovered at the quotation stage. They concern the ceiling, the works and the use.
Not all works are eligible. Some items fall under the standard rate, and a serious quotation distinguishes the two.
Area above a certain threshold. Luxembourg professional sources indicate that the reduced rate applies only to the part of the living area not exceeding four hundred square metres, the excess falling under the standard rate.
Dwellings not used as a main residence, with an important exception for renovation.
Expenditure incurred before approval, under the direct route.
What to check before signing a quotation
Four points, quicker to handle than a recovery procedure. They are checked before the first invoice.
That the quotation distinguishes eligible items from those at the standard rate.
That the approval request has been lodged by the professional and is not waiting on signature.
That the ceiling available on the dwelling is known, particularly on a property that has already undergone works.
That the intended use matches the conditions, particularly where letting is involved.
The articles in this branch
The article on main residence covers the central condition. The notion is defined there.
The article on creation and renovation covers the difference in regime. The two regimes are compared there.
The article on the ceiling and its exhaustion covers the limit. Its mechanism is detailed there.
The article on obtaining approval covers the procedure. The procedure is described there.
This article reflects the state of the schemes at the date of checking and serves professional orientation. It does not replace tax advice or consultation of the competent administration.