Luxembourg VAT Guide

Introduction

EU-wide VAT legislation was introduced to harmonize the VAT principles of all EU Member States and remove conflicts. Consequently, most Luxembourg VAT rules correlate with EU VAT Directive 2006/112/EC.

Should you collect VAT in Luxembourg?

You must collect the Luxembourg VAT in Luxembourg if your business is engaged in the following types of activities:

1. Supply of Goods: Supply of goods means transferring the right to dispose of a tangible property as owner.
2. Intra-EU acquisition: Acquiring or purchasing goods within Luxembourg from another EU Member State as a VAT-registered person (typically known as the Reverse Charge Mechanism).
3. Supply of Services: Supply of services covers any transaction not covered in the supply of goods.
4. Import of Goods: Any transaction that imports goods from a non-EU state to an EU Member State.

To know more, it is recommended to visit the official website. On the top of that, because the VAT laws of most EU Member States are harmonized with the overall EU VAT law (i.e., Directive 2006/112/EC) and also of Luxembourg, you can refer to Articles 14-30 of the EU tax directive for detailed information on taxable transactions.

When should you register for VAT in Luxembourg?

Typically, the value-added tax is destination-based (owing to place of supply rules – discussed separately in the One Stop Shop article), requiring every person (whether registered anywhere or not) to register for VAT when making any taxable sales in Luxembourg. VAT registration in Luxembourg is necessary for the following types of transactions:

• Supply of Goods or Services in Luxembourg to non-taxable persons: Sellers must register in Luxembourg and pay VAT only if they have not opted for One Stop Shop (see Notes 1 and 2 below).
• Supply of Services in Luxembourg to a taxable person: The recipient of services must register and pay VAT in the country if the supplier is not established in Luxembourg (under Article 196 of the EU VAT Directive (pg.39)).
• B2B Acquisition of Goods: Where the goods are sold by a taxable person from any EU Country to a taxable person in Luxembourg, the buyer should register for Luxembourg VAT (reverse charge basis under Article 197 of EU VAT Directive (pg. 39)).
• Import of Goods in Luxembourg: The importer must pay and register for VAT (if not covered in the Import One Stop Shop–see our OSS article for details).
• Export of Goods/ Services: Exporting goods/ services to non-EU countries would require a VAT number.

Important Note 1: If you supply goods from other EU Member States to Luxembourg, you would be required to attain registration for Luxembourg VAT only if your total annual sales (goods/ services) in the EU are more than EUR 10,000; in contrast, they should be taxed in the supplier’s member state owing to the EU-wide VAT threshold specified for TBE services and distance sale of goods. Refer to our EU One Stop Shop Article for more details, which contains information about the EU-wide VAT threshold and distance sale of goods.

Important Note 2: When you opt for EU One Stop Shop registration, you are exempted from separate registration for Luxembourg VAT. One Stop Shop applies to the B2C sales made by taxable persons from other EU countries to Luxembourg of over EUR 10,000 and the import of goods in Luxembourg below EUR 150. Visit our EU One Stop Shop article for more details.

“Example 1: Company A, a Spain-based company, sells goods to a non-taxable buyer B in Luxembourg. Company A’s total annual sales exceed EUR 10,000 in the EU, excluding sales in Luxembourg.

Company A must either register for Luxembourg VAT (if it does not opt to register for One Stop Shop) or the One Stop Shop.”

Luxembourg VAT Threshold Summary

To read the official guidance, visit the Luxembourg Official Website.

How can you Register for VAT in Luxembourg?

To register for VAT in Luxembourg, you can apply online or manually submit the initial application at the competent tax office. The application can be processed in a couple of weeks. The following details must accompany the VAT application:

• Name, address, and nature of business.
• Details of Offices/ facilities including branches, warehouse, etc.
• Bank Account details.
• If a Company is registered elsewhere (or in another EU Member State), the tax office and VAT number under which the Company is registered must be provided.
• Articles of Association.
• Certificate of Incorporation.
• VAT Certificate.
• Power of Attorney when appointing a fiscal representative in Luxembourg.

Please visit the official website of the Luxembourg Tax Authority for additional information about registration in Luxembourg. Although the registration process may sometimes involve cumbersome formalities, you can use TaxDo’s streamlined software without going anywhere else. Just fill out the required information on our software, and we will do the rest.

How should you collect and calculate VAT in Luxembourg?

VAT is generally charged on a destination-based principle (see the place of supply rules described in the OSS Article), which includes all taxable transactions (described earlier in this article) except those that are otherwise exempt; thus, the VAT Rate is applied to any sales made to Luxembourg.

VAT Rates

You must charge the VAT Rate of 17%, other than the products/ services you are supplying that are covered under the reduced rates of 14%, 8%, and 3%. Below is an illustrative list of items covered under the reduced VAT Rates:

For a complete list of reduced-rate goods/ services, refer to the Luxembourg VAT Act. Alternatively, the VAT rates in Luxembourg are available on the EU Commission website.

Certain conditions may apply to the reduced rates, where things get trickier. TaxDo is here for you! Our experts are well-equipped with VAT laws and will resolve all your concerns.

Below is the simple formula you can use to calculate your VAT collection on each merchandise/ service sold:

VAT collectible = Sale value * (Standard Rate or reduced Rate as may be applicable)

Digital Products/ Services

Digital Products are those stored, used, or delivered in electronic format or any such form. You must charge the Luxembourg VAT for such digital products since Luxembourg’s VAT laws align with EU VAT rules.

The digital products include the following:

• E-books, images, newspapers, movies, periodicals, videos, etc.
• Software-as-a-Service (SaaS), Platform-as-a-Services (PaaS) or Infrastructure-as-a-Service (IaaS).
• Online ads and affiliate marketing.
• Websites, site hosting services, and internet service providers.

VAT Exemptions

The legislation provides certain exemptions from the VAT, such as:

• Deliveries of gold to central banks
• Supplies of goods to diplomatic and consular missions
• Supplies of goods to international organizations
• Imports of goods by NATO military commands in the discharge of their institutional functions
• Supply of goods to an entrepreneur for his business (B2B).
• Exports.

Please visit the VAT Act to see what exemptions are covered.

B2B and Reverse Charge Mechanism in Luxembourg?

Suppose you are a taxable person from another EU Member State and sell the goods/ services to a VAT-registered person in Luxembourg. In that case, the transaction is considered a B2B Intra-Community supply, and you are not required to charge the VAT on an invoice raised to the buyer. On the other side of the pond, the Luxembourg buyer will account for VAT on the intra-community acquisition (under the reverse charge mechanism). The buyer will calculate the input VAT on purchase from another state in the VAT return and show the output VAT for the same amount, allowing him to adjust the tax liability, resulting in a zero VAT payment. Reverse charge is applied under Articles 196 & 197 of the EU VAT Directive.

Likewise, if you maintain a warehouse in Luxembourg from another EU Member State and transfer the goods, you will need a VAT number in Luxembourg and should account for Luxembourg VAT as an Intra-Community acquisition under the reverse charge. He will show the deemed purchase (input VAT) and deemed sale (output VAT) when filing the return in Luxembourg, leading to zero tax being paid.

“Example 2: Company A in France sells goods in Europe. For this purpose, it has set up a warehouse in Luxembourg. It transfers the goods from France to Luxembourg Warehouse and sells them in Luxembourg.

Company A must register and account for Luxembourg VAT on the stock transfer (considered an Intra-community B2B acquisition). While filing the VAT return in Luxembourg, Company A will show the input VAT on the intra-community acquisition and report the output VAT for the same amount. This way, the VAT liability would become zero on the stock transfer. Later, Company A must charge and pay Luxembourg VAT for goods sold to consumers in Luxembourg.

Should you appoint a fiscal representative in Luxembourg?

Appointing a fiscal representative is mandatory when you do not have an establishment, registered office, or branch office in the EU and carry out any VAT-exempted or taxable transaction in the country. However, it is optional for businesses based in another EU Member State.

The appointed fiscal representative shall require a power of attorney from the taxable person registered in another EU Member State.  

Fiscal representative appointment and carrying out the transaction may be complex, as any defaults can attract heavy fines and penalties. TaxDo can help you by appointing a fiscal representative and handling all the duties, as we work with leading tax partners in Europe, so we can find it easily.

To learn more about fiscal representatives, visit the official Luxembourg VAT law.

How should you file VAT in Luxembourg?

The VAT declaration frequency in Luxembourg is as follows:

*Annual reporting must be done by 1 May of the following year.

For more information, refer to Luxembourg’s official website.

Filing dates are sometimes extended in exceptional circumstances through a notification by the Luxembourg tax authority.

Note: If your tax due date is a holiday or weekend, the next business day would be considered the final due date.

You can file the VAT return in Luxembourg through the online portal or using TaxDo’s specialized software, which seamlessly files, calculates, and reports your taxes. Additionally, if you are selling to other EU Member States and opted for One-Stop-Shop, you must file an OSS return. Refer to our OSS article for further details.

Are there any fines or penalties for default when filing or paying VAT?

The legislation levies a penalty of up to EUR 10,000 for late submission of a VAT return. Additionally, a penalty of up to 50% of VAT due can be imposed if you are found guilty of fraud.

However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines Luxembourg issued for penalties and interest.

VAT Invoice in Luxembourg

A VAT invoice is a testament to how much VAT is charged and collected and evidence of the B2B/B2C supply basis for applying the other rules. Accordingly, the Luxembourg VAT invoice must include the following information:

• Business Name and Address of buyer and seller.
• Business VAT number issued to the supplier.
• Date of issue.
• Quantity and type (customary trade name) of the goods supplied or the scope and nature of the other service.
• Time of delivery or other service.
• The applicable VAT rate and the amount of tax are attributable to the consideration.

For more details, refer to the VAT Act.

Important Note 3: For any sales made to a country outside Luxembourg, you must convert the amounts to your official currency. For this purpose, you can use the European Central Bank’s official exchange Rates.

Keeping Records: You must keep the VAT records for at least ten years under Article 369 of the EU VAT Directive.