VAT Compliance and VAT Rates Luxembourg

Luxembourg, a small but economically significant member of the EU, has an intricate VAT system that plays a vital role in its thriving economy. In this article, we delve into VAT in Luxembourg, providing you with the necessary insights and guidance to understand the nuances of the Luxembourg VAT landscape, registration, and compliance requirements, with a special focus on ecommerce businesses and the impact of the COVID-19 pandemic.

Key takeaways

• Luxembourg’s VAT system consists of standard and reduced rates, exemptions, and zero-rated goods.
• Businesses must register for a VAT number in Luxembourg within two weeks of commencing taxable activity to remain compliant with local tax authorities.
• The government implemented temporary adjustments to its VAT rates due to the COVID-19 pandemic.

Overview of Luxembourg VAT rates

Luxembourg adheres to EU VAT directives, which form the basis of its VAT system. This system encompasses standard and reduced VAT rates, exemptions, and zero-rated goods that cater to the diverse needs of Luxembourg’s vibrant trade and service sectors. For businesses operating in the Grand Duchy, familiarity with these rates and their corresponding regulations is key to ensuring smooth operations and full compliance with Luxembourg tax authorities.

Standard VAT rate

The standard Luxembourg VAT rate is 16%, the lowest in the EU, and applies to the majority of taxable goods and services. This rate is subject to periodic review and adjustments, with the most recent change taking effect on January 1, 2023.

This 16% rate is levied on goods and services spanning various sectors, with companies required to report their VAT information through a user account on the relevant government portal.

Reduced VAT rates

Apart from the standard VAT rate, Luxembourg also implements reduced VAT rates, which in 2023 have also been lowered. They are now 13%, 7%, and 3% for specific goods and services:

Reduced rate (1): 13% - Applied to certain goods and services, including wine, advertising services, and non-alcoholic beverages.

Reduced Rate (2): 7% - Applied to a variety of goods and services, including gas and electricity, cleaning in private households, hairdressing, and minor repairs of bicycles, shoes and leather goods, clothing and household linen (e.g. mending and alteration), etc.

Super-reduced rate: 3% - Applied to essential goods and services, including foodstuffs, pharmaceutical products, books, newspapers and periodicals, children's clothing, hotels, restaurants, and admission to cultural events.

Exemptions and zero-rated goods

In addition to standard and reduced rates, the Luxembourg VAT system also includes zero-rated goods and exemptions.

Intra-community supplies and international transport are zero-rated, whereas financial services, health and medical care services, and education services are just a few of the areas exempt from VAT.

Zero-rated goods and services are technically subject to VAT but at a rate of 0%. This means that businesses selling these goods or services can reclaim VAT on their costs, which is not possible for VAT-exempt sales.

VAT registration and compliance in Luxembourg

In this section, we take a look at the process of Luxembourg VAT registration, the criteria for when you need to register, and the filing and payment deadlines. Understanding these requirements and the electronic submission and recordkeeping processes will ensure that your business remains compliant with Luxembourg’s tax authorities.

When to register for VAT

VAT registration in Luxembourg is required if you establish certain activities in the country or exceed specific thresholds. The VAT exemption threshold in Luxembourg is €35,000, and businesses with an annual turnover surpassing this amount must register for VAT. The timeframe for VAT registration is within two weeks of commencing the taxable activity, although there are a few exemptions to this stipulation.

Ecommerce businesses must also register for a VAT number if their annual cross-border sales in Luxembourg exceed €10,000. The process of VAT registration involves:

1. Contacting the Luxembourg tax authorities.
2. Completing the registration within 15 days of starting the taxable activity.
3. Upon registration, the business will receive a VAT identification number.

VAT filing and payment deadlines

VAT filing and payment deadlines in Luxembourg vary depending on the filing periods of the returns, which may be monthly, quarterly, or annually based on certain conditions. The due date for filing an annual VAT return in Luxembourg is before March 1st of the subsequent year. Taxpayers who are required to submit monthly or quarterly returns must ensure they submit their annual Luxembourg VAT return by the 15th of the month following the reporting period. Payment due dates are the same as the filing dates.

Adherence to these deadlines is crucial to avoid penalties and maintain compliance with Luxembourg tax authorities. Failure to submit VAT returns and payments on time can result in fines or other consequences for your business.

Electronic submission and recordkeeping

Businesses are required to submit VAT returns electronically through the eCDF system in Luxembourg. This electronic submission process not only streamlines the reporting and payment of Luxembourg VAT but also ensures that businesses maintain accurate and up-to-date records of their VAT-related transactions.

Moreover, businesses must adhere to electronic recordkeeping requirements for VAT-related documents, annual accounts, and company accounts in Luxembourg. These requirements necessitate the use of the platform for the electronic gathering of financial data (eCDF) and the preservation of the documents for a period of 5 or 10 years, depending on the specific case.

Failing to submit VAT returns electronically or adhere to recordkeeping requirements can result in penalties ranging from €250 to €10,000 per infringement, depending on the severity of the violation.

Special VAT provisions for ecommerce businesses

Another option for ecommerce businesses is the One-Stop-Shop (OSS) and Import One-Stop-Shop (IOSS) systems, which simplify VAT registration and compliance, making it easier for them to operate across multiple EU countries.

One-Stop-Shop (OSS) system

The OSS scheme for VAT registration and compliance in Luxembourg allows ecommerce sellers to register for VAT in a single EU Member State for all their intra-EU sales. This enables them to report and pay their VAT obligations through the OSS system, rather than registering for VAT in each individual EU country where they have customers. As a result, the OSS system simplifies the VAT compliance process for ecommerce businesses operating in multiple EU countries.

By registering through the OSS process in the country where your business is located, you can access the following benefits:

• Streamlined VAT compliance
• A single electronic quarterly return
• Conformity with EU VAT regulations
• Access to a broader market
• Effective tax administration

Import One-Stop-Shop (IOSS) system

The IOSS system in Luxembourg is designed to streamline and unify the declaration and payment of VAT on distance sales of goods valued up to €150 imported from outside the EU to customers in Luxembourg. By enabling businesses to declare and pay VAT at the time of sale using a declarative system called IOSS, it facilitates the reporting and payment obligations for ecommerce businesses.

Registration for the IOSS in Luxembourg can be completed through the IOSS portal of any member state. Non-EU companies selling goods with a value of €150 or less to non-VAT registered customers in the EU can register for the IOSS.

Using the IOSS system offers ecommerce businesses in Luxembourg:

• Streamlined VAT compliance
• Unified registration and reporting system
• Improved efficiency
• Transparent pricing for customers

Intrastat reporting in Luxembourg

Reporting trade in goods between EU Member States, known as Intrastat reporting, is an integral part of conducting business within the EU. In Luxembourg, businesses trading goods with other EU states must adhere to Intrastat reporting requirements and processes to ensure accurate data collection and compliance with EU trade regulations.

Intrastat thresholds

Intrastat thresholds determine when a business must submit an Intrastat declaration and account for acquisition tax on goods traded between EU Member States. In Luxembourg, the current thresholds for Intrastat reporting are €250,000 for arrivals and €200,000 for dispatches.

Businesses that exceed these Intrastat thresholds are required to submit Intrastat declarations and account for acquisition tax on the goods traded between EU Member States.

Intrastat declaration process

Submission of declarations to the Intrastat Department of STATEC is a part of Intrastat declaration process carried out in Luxembourg. This department is associated with the National Institute for Statistics and Economic Studies (Institut national de la statistique et des études économiques).

Declarations can be submitted in either paper or electronic format, with paper forms available on the Intrastat Department’s website and electronic submissions made through the designated platform. The declaration must include pertinent information about the movement of goods.

The deadline for Intrastat reporting in Luxembourg is the 16th day of the month following the reporting period. It is crucial for businesses to submit their Intrastat declarations on time to avoid fines or other penalties for non-compliance. Failing to submit Intrastat declarations on time can result in fines between EUR 100 and EUR 10,000 per infringement.

Fiscal representation

Appointing a fiscal representative is a mandatory requirement for non-EU companies in many EU countries, including Luxembourg, to ensure that the company complies with local VAT regulations. The fiscal representative is jointly and severally liable for the VAT debts of the foreign company, which provides an additional level of assurance to the tax authorities that the VAT will be correctly accounted for and paid.

The process of appointing a fiscal representative in Luxembourg involves selecting a duly approved tax representative to manage all the registration activities and formalities associated with VAT Luxembourg declarations. The tax representative will act as the company’s representative for VAT purposes in Luxembourg, ensuring compliance with all VAT obligations and acting as the primary point of contact for the local tax office.

VAT invoice requirements

A VAT invoice in Luxembourg must comply with various requirements set out by the Luxembourg tax authorities. The main components that should be included in a Luxembourg VAT invoice are:

• Invoice number: A unique and sequential number identifying the invoice.
• Date of issue: The date when the invoice was issued.
• VAT number: The seller's VAT identification number.
• Full name and address: The full names and addresses of the seller and the buyer.
• Description of goods or services: A detailed description of the goods or services supplied.
• Quantity of goods or services: The quantity of the goods or services provided.
• Unit price: The price per unit of the goods or services, excluding VAT.
• Total net amount: The total amount excluding VAT.
• VAT rate: The applicable VAT rate(s).
• VAT amount: The total amount of VAT charged.
• Total gross amount: The total invoice amount, including VAT.
• Date of supply: If different from the date of the invoice, the date when the goods were delivered or the services were completed.
• Any additional information: Any additional information that might be required, such as customs details for international shipments.

Impact of COVID-19 on Luxembourg VAT rates

Like countries worldwide, Luxembourg has experienced a significant economic impact due to the global COVID-19 pandemic. In response, the Luxembourg government implemented temporary adjustments to its VAT rates to provide relief and support for businesses. One notable change was the reduction of the standard VAT rate from 17% to 16% in January of 2023.

Conclusion

Navigating the Luxembourg VAT landscape requires a thorough understanding of the rates, registration process, and compliance obligations. By staying informed and diligent in all areas of VAT compliance, you can ensure a smooth VAT experience in Luxembourg.

Do you need help with your VAT compliance? Book a free call with one of our VAT experts to find bespoke solutions for your business, optimize your VAT costs, and reach millions of new potential customers.

Frequently Asked Questions

What is the VAT rate in Luxembourg 2023?

In 2023, the standard VAT rate in Luxembourg will be 16%, reduced from the usual 17%. The reduced rates in 2023 are 13%, 7%, and 3%.

Are there any reduced VAT rates in Luxembourg?

Yes, Luxembourg has reduced VAT rates of 3%, 8%, and 14% for certain goods and services.

How does a business register for VAT in Luxembourg?

Businesses can register for VAT in Luxembourg by submitting an application to the Luxembourg Inland Revenue (Administration de l'Enregistrement et des Domaines). The application should include all necessary documentation, such as business identification details, proof of taxable activity, and any other required information.

How do I check if a company is registered in Luxembourg?

To check if a company is registered in Luxembourg, you can access the Luxembourg Trade and Companies Register (Registre de commerce et des sociétés – RCS) which is available for free. The information regarding traders and companies which must be disclosed by law will be published alongside their RCS number.