To encourage housing development, Luxembourg applies a 3% VAT rate to construction and renovation works on homes, provided they are intended to be used as a primary residence, either directly by the owner or indirectly by a third party. The super-reduced VAT rate of 3% applies to construction and renovation work on dwellings used as a primary residence, whether occupied by the owner or by a third party (such as a long-term tenant). The property must be used as a main home; short-term rentals are not eligible.
| Criteria | Condition |
| Nature of the works | Only renovation, transformation, or improvement works are concerned. New constructions and works that do not change the state or use of the property are not eligible. |
| Age of the property | The dwelling must have been built at least 10 years ago. |
| Main use | The dwelling must be intended as a primary residence, whether for the owner or for a long-term tenant. |
The total amount of the tax benefit resulting from the application of this reduced 3% VAT rate must not exceed €50,000 per housing unit created or renovated.
It is possible to benefit from the super-reduced VAT rate in two ways:
- By direct application: eligible works carried out by professional trades are invoiced directly at the super-reduced rate, after obtaining approval from the Registration Duties, Estates and VAT Authority (Administration de l’enregistrement, des domaines et de la TVA – AED)
- By refund of the difference between the standard rate and the super-reduced rate: in this case, a VAT refund request must be submitted to the AED, once the eligible works have been completed or commissioned.
In most cases, the first option is chosen. Any right to a VAT refund expires 5 years after December 31 of the calendar year to which the tax to be refunded relates.
Works eligible for the super-reduced VAT Rate
The eligible works are:
- creation of a housing unit (construction, conversion of an existing building, extension, creation of attached or nearby garages).
- renovation of an existing housing unit, particularly major improvement works (replacement of windows, flooring, painting, etc.), provided that the property is at least 10 years old at the start of the work.
In particular, the supply of furniture, even built-in items such as fitted kitchens or wardrobes, is not eligible. Similarly, special technical equipment such as alarm systems or home automation installations is not admissible.
Here two practical examples of renovation projects
Example 1
Mr. Weber has decided to undertake renovation works in his apartment in Hesperange. The total cost of the works amounts to 100,000 euros.
In this case, he will benefit from a reduced VAT of 3%, which means the total will amount to 103,000 euros (100,000 euros + 3% VAT) instead of 117,000 euros (100,000 euros + 17% VAT).
He will therefore save a total of 14,000 euros on an amount of 50,000 euros.
Example 2
Mrs. Schmit plans significant renovation works in her house in Strassen totaling about 500,000 euros. In this case, she will be able to benefit from a reduced VAT rate on approximately 350,000 euros of the works.
In practice:
350,000 euros + 3% VAT = 350,000 euros + 10,500 euros = 360,500 euros
instead of
350,000 euros + 17% VAT = 350,000 euros + 59,500 euros = 409,500 euros
Mrs. Schmit will thus save 49,000 euros (the difference between 409,500 euros and 360,500 euros), almost fully exhausting her tax advantage limited to a maximum of 50,000 euros. The remaining part of about 150,000 euros will be subject to a VAT rate of 17%.
