Overview

Having already issued guidelines on 12 January 2010 on specific income tax aspects of Islamic finance, the Luxembourg tax authorities issued a second set of guidelines on 17 June 2010 to clarify specific registration tax and value added tax (VAT) aspects of Murabaha and Ijara structures. In substance, the guidelines clarify how registration taxes apply with respect to Murabaha transactions on Luxembourg real estate and confirm that a special purpose vehicle (SPV) entering into a Murabaha or Ijara transaction will be treated as a taxpayer for VAT purposes.

Over the last two years, the Luxembourg authorities have made considerable efforts to promote the country for Islamic finance. Previously, while Sharia compliant funds and securitisation vehicles found fertile ground in Luxembourg's flexible and versatile legislation, more traditional Islamic finance products, such as Murabaha structures, fared more poorly in Luxembourg, due in particular to certain uncertainties regarding their tax treatment. As part of its efforts to make Luxembourg more attractive for traditional Islamic finance products, the government invited the tax authorities to analyse the tax obstacles these products currently faced when compared to conventional financing structures and to propose solutions to reduce such obstacles.

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