Luxembourg Property Companies investing in Germany – Challenges from an accounting and tax point-of-view (part 2 – SAF-T/FAIA)

In Uncategorized by Michael Probst

With accounting performed by three parties in two countries (see part 1 of this blog), there is one legal and tax issue that needs to be considered: the Standard Audit File for Tax (SAF-T – or French: FAIA) and the connected issues. Indeed, even though a problem has so far been avoided in the market (or at least there is no information or rumors), the law is clear and the risk to be requested a data delivery increases on a daily basis.

The legal basis: Luxembourg has implemented this obligation which transposes OECD-guidelines during 2008 in Luxembourg law. An update has been enacted in 2013.

As a result of the law, a FAIA file needs to be presented to the Luxembourg VAT authorities upon request and has to be in the format described in the Luxembourg law.

Luckily, certain companies will be exempted by the FAIA obligation.

Major exemptions in the real estate sector will be:

  • Companies which are only registered under the simplified VAT-assessment regime (i.e. turnover not subject to VAT, but reverse charge obligations)
  • Companies with a limited volume of transactions (i.e. +/- 500 transactions)

The first exemption should help holding and finance companies which have no input-VAT deduction right, but are VAT-registered under the simplified VAT-assessment regime, and have to file a simplified annual return only.

The second exemption may cover a relatively large number of real estate companies. Indeed, 500 transactions does not imply 500 accounting entries, but rather 500 invoices. Related accounting entries will be seen as one transaction (different elements of an invoice, the creditor/debtor account, VAT and the settlement/payment).

All companies not covered by one of the exemptions will be obliged to deliver (upon request) a FAIA file corresponding to the legal prescriptions.

A standard Luxembourg accounting software should be in a position to produce this file. Looking at accounting performed abroad (in booking centers around the world like India, Lithuania, Estonia or other) the production of an appropriate FAIA file may create an issue.

The same problem arises in respect of a real estate company, where the underlying accounting is performed abroad and Luxembourg does not even have the control over the number of transactions.

Simple solutions to this could be:

  • Split large properties into several companies to reduce the number of transactions (residential real estate is VAT-exempt and does therefore not trigger a FAIA file to be delivered (careful with mixed activities)
  • Use local entities (e.g. partnerships) in Germany

If these alternatives cannot be implemented/do not make any sense, it will need to be assured that the accounting systems of services providers (or the promoter) allow the preparation of FAIA files as prescribed for Luxembourg. Given the OECD recommendation, multinational accounting systems (at least those pretending to be multinational) should be able to extract such files for different jurisdictions.

Always bear in mind: An OECD recommendation will offer alternative interpretations. Consequently, there may be a large variety of country specifics – just as for Luxembourg.

IT and tax will continue to be good business cases….

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