Complete guide to off-plan purchases (VEFA) in Luxembourg
VEFA (Vente en l'Etat Futur d'Achevement) is the preferred acquisition method for new housing in Luxembourg. Governed by the law of 18 April 2018, it provides a protective legal framework for buyers:
- Reservation contract: preliminary document with maximum 5% deposit
- Notarised sale deed: progressive ownership transfer with regulated payment calls
- Completion guarantee: mandatory bank or insurance guarantee
- Decennial guarantee: 10-year builder liability for hidden defects
VEFA payment schedule: key stages
Article 1601-11 sets a maximum payment schedule:
- Sale deed: max 33%
- Watertight stage: cumulative max 60%
- Completion: cumulative max 95%
- Delivery: 5% balance (retained if defects noted)
VAT and taxation of VEFA in Luxembourg
The VEFA tax regime offers significant advantages:
- Land portion: 7% registration duties with Bellegen Akt for primary residence
- Construction portion: 3% VAT (super-reduced) for primary residence, capped at EUR 50,000 in savings
- Beyond cap or for investment: 17% VAT
Interim interest: an often underestimated cost
Interim interest is paid on funds already released during construction, before capital repayment begins. For a EUR 600,000 VEFA with EUR 500,000 loan at 3.8% over 18 months of construction, interim interest is approximately EUR 12,000-15,000.
Frequently asked questions about VEFA in Luxembourg
What is VEFA in Luxembourg?
VEFA is a contract where the developer sells a property not yet built or under construction. The buyer progressively becomes owner with regulated staged payments under the law of 18 April 2018.
What are the risks of VEFA?
Main risks are delivery delays (contractual penalties), specification changes (developer cannot change essential elements without agreement), and developer insolvency (covered by mandatory completion guarantee).
How do I benefit from the 3% reduced VAT rate?
The 3% rate applies to the construction portion of property intended as primary residence. The application is made to the AED, typically through the notary.
What if there are defects at delivery?
At reception, prepare a detailed report listing all defects. The 5% balance is retained until defects are fixed. The developer must correct within a reasonable timeframe.
Is interim interest tax-deductible?
Yes, interim interest is deductible from taxable income like mortgage interest, within the caps for primary residence (EUR 1,500-3,000/year).