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LUXEMBOURG

GENERAL INFORMATION

Value added tax (VAT) was introduced in Luxembourg by the Law of 12 February 1979. The VAT authority in Luxembourg is the Administration de l’Enregistrement et des Domaines. Supplies in all geographic areas of the country are subject to VAT. A taxpayer for Luxembourg VAT purposes is any person (an individual or a legal entity) who performs, in an independent and regular manner, activities connected with an economic activity, regardless of any profit motive and whether on a principal or secondary basis.

 

APPLICATION OF VAT

Luxembourg VAT applies to the domestic supply of goods and services within Luxembourg and to the importation of goods by Luxembourg entities from countries that are not members of the EU. Additional transactions subject to Luxembourg VAT are intra-community acquisition of goods in Luxembourg, the intra-community acquisition of a new means of transport by any person (including private persons) into Luxembourg and the organisation of services from a provider based outside Luxembourg. A service is deemed to be rendered in Luxembourg if the supplier or the client has a permanent establishment in Luxembourg.

 

SPECIAL REGULATIONS

Small businesses with an annual turnover of less than €10,000 benefit from a Luxembourg VAT free regime. No registration for VAT purposes is required for this kind of taxpayer, therefore they do not need to charge Luxembourg VAT. However, if this type of taxpayer does in fact register, they must charge VAT on their invoices and can reclaim VAT paid to their suppliers.

If a taxpayer has turnover of between €10,000 and €25,000, they may benefit from a tax credit equal to 1% of the difference between €25,000 and the amount of turnover realised by the taxpayer, not exceeding €150 or the amount of Luxembourg VAT due by the taxpayer on their turnover after deductions.

The taxpayer may choose to apply the normal Luxembourg VAT regime. If the taxpayer makes this choice, it must maintain the normal Luxembourg VAT regime for a period of five years.

 

RATES OF TAX

The standard Luxembourg VAT rate is 15%. This is the lowest permissible VAT rate for an EU country. The standard rate of Luxembourg VAT is applicable to all supplies unless a reduced rate, zero rate or VAT exemption applies. Since the law dated 20 March 2006 (applicable 1 January 2007), the following services are specifically subject to a 15% VAT rate:

A rate of 3% applies to certain items including food.

A 6% rate applies to gas and electricity as well as plants and flowers. From 1 January 2009, heating and wood used for heating are also subject to this reduced VAT rate.

A 12% rate applies to the supply of certain items including solid mineral fuel and mineral oil and custody and management of securities to name but a few.

Tobacco is taxed under a specific regime. The prices are fixed by the Luxembourg Government, and VAT is collected at source by the tobacco manufacturer. As such, no Luxembourg VAT is collected by tobacco shops on the sale of tobacco.

 

EXEMPTIONS

The law provides for certain exemptions from Luxembourg VAT including: the exportation of goods;management services for funds;most banking and insurance activities;leasing and sale of real estate, and medical, educational and charitable services.

A zero-rate of VAT applies to intra-community supplies of goods and services, export to non-EU companies (goods and services).

 

FILING VAT RETURNS, PAYMENT OF TAX AND APPLICABLE PENALTIES

All companies registered for the Luxembourg VAT regime must file an annual VAT declaration. If the previous gross turnover of the company was between €112,000.01 and €620,000, the company must also submit quarterly VAT declarations in addition to the annual Luxembourg VAT declaration. If the previous gross turnover is higher than €620,000, the company must submit monthly VAT declarations in addition to the annual declaration.

Taxpayers must file Luxembourg VAT declarations even if they have no taxable activity in a period. Taxpayers who supply goods from Luxembourg to other EU member states, as well as entities that pay centrally for a number of subsidiaries, can file quarterly. Electronic VAT filing is permitted. A taxpayer must pay the amount of VAT due for a specific period by the date the Luxembourg VAT return must be filed. Bank transfer is the usual form of payment of VAT due.

Penalties for late filing of Luxembourg VAT returns depend upon individual circumstances. An administrative fine of up to €5,000 may be assessed. Penalties for late payment also depend upon individual circumstances. An administrative fine of up to €5,000 may be assessed but may not exceed 10% of the VAT amount due. The penalty for non-payment is 10% per year of the amount due.

 

LUXEMBOURG VAT REGISTRATION

There is no registration threshold for resident and non-resident businesses. All companies which have a commercial activity must register for VAT when they begin commercial activities. In practice, pure holding companies that hold subsidiaries without any financing activity (which is considered commercial activity) cannot register. Additionally, a company with a turnover of less than €10,000 is not obliged to register but can elect to be subject to the Luxembourg VAT regime.

Resident businesses, non-resident businesses and PEs of non-resident businesses must file a declaration with the Adminstration de l’Enregistrement et des Domaines. Upon filing the declaration, taxpayers receive a VAT identification number. The VAT identification number for resident and non-resident businesses and taxable persons is a ten digit number in the format xxxx xxx xxx.

There are no specific penalties for resident and non-resident businesses who either fail to register or register late, but a penalty may apply for filing an incorrect VAT declaration.

 

LUXEMBOURG VAT REPRESENTATIVES

As from 1 January 2008, Luxembourg reintroduced a tax representation system for the importation of goods on behalf of taxable persons who are neither registered nor established in Luxembourg. This concept was initially abandoned in 2002. Today this system is optional, and foreign taxable persons may still register directly for Luxembourg VAT purposes.

Companies that intend to take advantage of tax representation should appoint a tax representative before the import transactions take place. The representative should be designated as the importer of the goods and will be liable for payment of Luxembourg VAT on imports, on subsequent supplies and on any operations bearing a direct relation to such goods.

 

INPUT VAT DEDUCTION

VAT deduction is only possible if a taxpayer has an activity subject to Luxembourg VAT. The recipient of goods and services can generally deduct input VAT on receipt of an invoice from a supplier. Input VAT that is directly related to tax-exempt supplies or is used for purposes other than business purposes is not deductible. The taxpayer may opt, under certain conditions, to subject leasing and sale of real estate transactions to Luxembourg VAT. In that case, a taxpayer may recover Luxembourg VAT paid on relevant supplies received.

Business people residing in Luxembourg with annual turnover lower than €10,000 are exempt from Luxembourg VAT but can opt for taxation in accordance with the standard regime which entitles them to deduct any input VAT charged to them or issue invoices showing VAT separately.

 

LUXEMBOURG VAT REFUNDS

A taxpayer may claim a Luxembourg VAT refund by filing a VAT return. The tax authorities settle VAT refunds according to the difference between the VAT collected and the VAT paid. If the Luxembourg VAT paid is higher, then the taxpayer will receive a refund.

 

 

 

 

 

LUXEMBOURG VAT (TVA)