Luxembourg Unveils Energy Efficiency Tax Credits

by Ulrika Lomas, Tax-News.com, Brussels

21 September 2011

Luxembourg’s Finance Minister Luc Frieden and Housing Minister Marco Schank recently unveiled key details of different fiscal measures designed to encourage energy efficiency improvements in properties in Luxembourg.

Underlining the ecological, economical and social aims of the new provisions, Finance Minister Frieden explained that the government elected to reform the existing tax credit provisions in the wake of mounting criticism, while at the same time endeavouring to ensure greater coherence with the government’s housing policy.

Alluding to the ecological aim of the tax credit, Finance Minister Frieden stated that in a world where everyone has to assume responsibility for others and in which resources are very rare and precious, it is imperative to promote energy efficiency and to protect the environment by increasingly linking fiscal regimes with energy efficiency criteria.

With reference to the economic dimensions of the new provisions, Luc Frieden noted that improvements to existing properties will lead to additional employment.

Luxembourg’s Housing Minister Marco Schank explained that in accordance with the new plans, the EUR20,000 tax credit will be divided into two equal parts, each to the value of EUR10,000. Although all property buyers will be entitled to receive the first EUR10,000 tax credit unconditionally, the second tranche of EUR10,000, referred to as the ‘supplementary energy tax credit’, will be subject to new conditions relating to the energy performance of a purchased property. These conditions vary according to the energy classification, the minister continued.

For properties that have been classified as either class A or class B on the deeds (the highest energy-efficiency ratings), the purchaser will benefit from the supplementary energy tax credit. For properties classified as either class C or D, the purchaser is entitled to the tax credit provided that the property’s energy efficiency is raised to class A or B within three years. In cases where the property has been classified as below class D, the purchaser will be entitled to the additional energy tax credit provided that they carry out the necessary energy efficiency improvements needed to raise the property to class A, B, C or D, again within three years.

In parallel with these provisions, the government has approved two new fiscal measures: in a bid to encourage owners of older buildings destined for rent to carry out energy improvements in the property, the bill aims to enable the individual to benefit from an accelerated rate of depreciation of 10% for the first eight years for investment costs linked to energy improvements, after which the standard rate will apply; and the grand-ducal regulation also provides for a reduction from 15% to 3% of the value-added tax rate accorded for energy efficiency improvements in a property.

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