Luxembourg Tax 2024-08

Be ready for 2025! The VAT bill of law n°8406 submitted this summer by the Luxembourg government provides for the transposition foreseen on 1^st January 2025 of two European Directives, involving (amongst others) the restructuring of the special scheme for small enterprises, changes in place of supply rules for digital events and new VAT developments in the art sector.

According to the Luxembourg VAT Law, cultural, artistic, sporting, scientific, educational, entertainment or similar activities provided to non-taxable persons should be taxable at the place where the services are physically carried out. The new contemplated clause will introduce a provision for virtual events for which the place of supply shall be where the non-taxable person receiving the services is established, has his permanent address or usually resides.

This provision is most welcome as it clarifies and harmonizes the place of supply of virtual events amongst Member States when access to such virtual events is supplied to non-taxable persons. Following the increasing number of virtual events during the Covid crisis, disparities in interpretation and application between Member States were observed with respect to the place of supply of services consisting of providing access to events, notably virtual.

The registration through the One-Stop-Shop (OSS) System should allow Luxembourg suppliers to fulfill their VAT obligations in a Member State in which they are not established (i.e. declare and pay the VAT due on supplies of access to virtual events in the non-taxable recipient’s country).

Currently, the reduced VAT rate of 8% only applies on imports as well as domestic supplies of works of art, collectors’ items or antiques performed by the creators or their successors in title.

Under the new provisions, the reduced rate shall apply to all supplies of such goods (including as well intra-Community acquisitions), as well as their subsequent resale.

However, where the reduced rate is applied, taxable resellers or a public auction organizers will no longer be able to opt for the profit margin scheme. When such profit margin scheme is applied, it is clarified that only the 17% VAT rate shall apply. 

Initially provided for in the first version of the bill, a removal of the exemption for international passenger transportation was planned, which would have triggered clear difficulties for the concerned operators, and the sector as a whole. A recent government amendment however plans to maintain this exemption, which is most welcome.

• the revised national special scheme for small enterprises should be applicable (amongst other conditions) when a taxable person, established in Luxembourg, carries out its economic activity there and avails himself only in Luxembourg of this national special scheme. The annual Luxembourg turnover of the taxable person should not exceed EUR 50,000 (instead of EUR 35,000 previously);
• the (new) cross-border special scheme for small enterprises should be applicable (amongst other conditions) when a taxable person
  • established in Luxembourg, carries out an economic activity in another Member State and avails himself in this other Member State of this cross-border special scheme, as long as the annual turnover generated by this taxable person within the European Union does not exceed EUR 100,000 nor the threshold applicable in the Member State where it will benefit from the cross-border special scheme;
  • established in another Member State, carries out an economic activity in Luxembourg. This person can also benefit of this cross-border special scheme as long as it does not perform intra-community acquisition of goods in Luxembourg, the annual turnover generated by this taxable person within the European Union does not exceed EUR 100,000 nor the threshold applicable in Luxembourg, where it will benefit from the cross-border special scheme (i.e. EUR 50’000).

In both cases, the taxable persons availing of one of those special schemes for small enterprises in Luxembourg should not charge any VAT on the supplies they perform. Consequently, they do not benefit either from an input VAT recovery right on costs incurred.

The benefit of these special schemes should reduce the administrative burden on the taxable persons applying them, in terms both of VAT registration(s) and return(s). However, the provision provides for a requirement for the taxable person benefitting from the national special scheme to notify the Luxembourg VAT authorities of the turnover generated in Luxembourg in the previous calendar year.

In the same way, a taxable person established in Luxembourg and eager to benefit from the cross-border special scheme in another Member State would need to notify Luxembourg upfront (and receive a “EX” VAT registration number) and would also need to notify periodically the total amount of the supply of services and goods performed in Luxembourg and in each other Member State. This will allow the VAT authorities to verify that the thresholds are not exceeded.

These new provisions provide as well for a temporary and pragmatic tolerance for the national scheme when the EUR 50,000 threshold is exceeded by a maximum of 10%. In this case, the taxable person should still temporarily remain under the special scheme for small enterprises.

These provisions are still subject to changes as the legislative process is still ongoing. However, these changes need to be known and anticipated to ensure (if relevant) a smooth run of businesses as of 1^st January 2025.

Your team of VAT experts stay at your disposal for any questions you may have in respect to the above.