Continuing volatility in the worlds financial markets has left investors looking for alternative investment assets that will provide long-term stable income and the potential for capital gains.
Luxembourg remains a leading jurisdiction for structuring international real estate investments due to its robust legal framework, tax treaty network, and adaptable investment vehicles. Its prominence as a holding and financing hub makes it ideal for both institutional and private investors seeking tax efficiency, legal certainty, and operational flexibility when acquiring real estate within and beyond the European Union.
Why Structure Through Luxembourg?
Real estate investment through Luxembourg offers several technical advantages:
- Access to over 80 double tax treaties, minimizing withholding tax on dividends, interest, and capital gains
- EU-compliant corporate structures, benefiting from directives such as the Parent-Subsidiary and Interest & Royalties Directives
- Neutral VAT regime that allows for efficient input recovery
- Central location and reputation in fund administration, asset management, and cross-border corporate structuring
Luxembourg’s flexible company law (notably the law of 10 August 1915, as amended) supports efficient legal structuring and is widely recognized by international lenders, making it highly attractive for acquisition financing and syndicated debt deals.
Common Luxembourg Vehicles for Real Estate Holding
1. Société à responsabilité limitée (S.à r.l.)
- Ideal for holding real estate either directly or through subsidiaries/SPVs
- Only one shareholder required; low minimum share capital (€12,000)
- No requirement for a Luxembourg resident director (but advisable for substance)
- Transparent tax treatment (subject to corporate income tax, municipal business tax, and net wealth tax)
The S.à r.l. can benefit from Luxembourg’s tax treaties if structured properly, with appropriate economic substance, which includes having local directors, an office, and decision-making in Luxembourg.
2. SOPARFI (Société de Participations Financières)
- Unregulated holding company, typically formed as an S.à r.l. or S.A.
- Primarily used to hold participations in real estate companies across jurisdictions
- Eligible for participation exemption: Dividends and capital gains from qualifying subsidiaries can be exempt from Luxembourg tax
SOPARFIs are often used for tax consolidation and dividend repatriation from real estate operating entities based in the UK, Germany, Portugal, or the U.S.
3. Special Purpose Vehicles (SPVs)
- Incorporated for single-asset or project-based ownership
- Legally and financially segregate risk
- Facilitate off-balance sheet financing, limited recourse lending, and efficient property disposal through share transfers
Luxembourg SPVs are frequently used to hold UK commercial assets and are designed to align with international debt structuring, including senior loans, mezzanine financing, and shareholder loans.
4. SIF (Specialised Investment Fund)
- Regulated by the CSSF and used for pooling investments from qualified investors
- Tax-neutral (1% annual subscription tax; no corporate or capital gains tax at fund level)
- Allows for indirect ownership of global real estate assets, including via local operating entities or REITs
SIFs are suitable for real estate portfolios exceeding €10–20 million and can be structured to optimize exit planning, promote investor liquidity, and integrate institutional governance.
Strategic Considerations for Cross-Border Structuring
Luxembourg vehicles are widely accepted by:
- Lenders for non-recourse project financing
- Local authorities and tax administrations across the EU and the UK
- Investors requiring asset protection, income repatriation, and exit planning
Additionally, Luxembourg companies can be integrated with Dutch CVs, UK LPs, U.S. LLCs, or Cypriot HoldCos for tiered structuring.
