This is the second article in our series on tax deduction solutions in Luxembourg. What are the possible tax deduction measures when you renovate your home?

Reimbursement or application for VAT super-reduced rate

To stimulate property creation and renovation in Luxembourg, the State has made construction and renovation works on a property subject to a VAT rate of 3% (instead of the usual 17%). This rate may be directly applicable during the works after receiving the approval of the Luxembourg Registration Duties, Estates, and VAT Authority (AED).

What is the AED?

If the reduced rate has not been directly applied, it is possible to request reimbursement of the difference from the AED (within five (5) years from 31/12 of the calendar year of the tax to be refunded). However, this "super" VAT rate does not apply to fitted kitchens, special technical equipment, such as installing an alarm, interior blinds, curtains, or the layout of the garden or terrace. The maximum authorized amount is €50,000 per property created or renovated.

More details.

Tax deduction of interest expense and other renovation-related costs

As mentioned in the article Tax deductions on real estate acquisition in Luxembourg, all taxpayers can deduct from their taxation the debit interest (and other costs) related to their property renovation. If you are already domiciled in your new home, the deduction amount is capped. However, there is no cap for the duration of the work if you do not live on the property. Although this measure is desirable, it has limits: the so-called "investment" expenses are not considered. The subdivision of the property into several dwellings, its transformation into commercial premises, its improvement (such as installation of central heating or a lift), the extension, or the development of an attic room, are not tax-deductible. If the costs exceed 20% of the purchase price, it is unlikely to be deductible.