Luxembourg Tax Alert 2023-16

The start of 2024 will mark the end of the temporary VAT rates cuts included in the “anti-inflation package” adopted by the government on 20 September 2022 and effective throughout 2023 (see our previous alerts 2022-08, 2022-09 and 2022-11) .

As a reminder, this 1% reduction of most VAT rates was only aimed at being temporary and – unless a last minute change would happen – rates should go back to their 2022 levels as from 1 January 2024.

The former VAT rates of 17%, 14%, 8% and 3% will therefore be reinstated on 1 January 2024.

• System and process readiness: the situation should be more convenient for accounting systems this year since the “old” VAT codes will just need to be used again. However, as mentioned in our alert 2022-11, other tools such as expense reporting or invoice generation systems are likely to be affected and will need to be (re)updated accordingly. The 2024 VAT return templates will continue to reflect the application of dual rates.
• How do you make sure invoices with incorrect VAT rates will be identified? Once again, the tax/chargeability point of the transactions will be required knowledge, and the dedicated teams (finance/accounting) should be made aware of those rules. Indeed, businesses with no or limited input VAT deduction right will want to avoid paying VAT applied at an incorrect higher rate, which will constitute a final cost.
• Tax/chargeability point: as emphasized in our previous newsletters, the determination of the tax/chargeability point of a transaction is key to determining the VAT rate applicable and in particular with the added challenge of re-applying the old VAT rates.

Which VAT rate applies will depend on several factors, namely:

• The date of supply of the goods/services;
• The date a VAT invoice is issued (or should have been);
• The date of receipt of early/down payment.

The impacts of reapplication of the former VAT rates are not always straightforward. Specific transaction types and timing of supply/invoicing needs to be considered for this change as well: advanced payments, continuous supplies of services, or credit notes are scenarios that commonly raise doubts concerning the correct VAT rate that must be used.

Your team of VAT experts is at your disposal for any further questions you may have.