International tax advice

V.A.T.

VAT management services in Luxembourg, double tax treaties, tax advice, Luxembourg VAT.
The 6th Directive requires all European Countries to include the VAT system in their law. This tax was first implemented in Luxembourg on the 1st of January 1970 and has been modified twice since: in 1980, and most notably in 1993.

VAT - European Value Added Tax

The current intra-community VAT regime is the result of the 6th directive, modified by the EC directives 91/690 of the 16th December 1991 and the 92/111 of the 14th December 1992.
(See Text)

All the rules that apply in the rest of the European Community also apply in Luxembourg. There are some differences involved with appointing fiscal representatives in Luxembourg compared with other countries.

Basically, the end-user client is liable for VAT. The various steps of a transaction are not relevant, as the supplier and its direct client can claim VAT back from the government. VAT is fully deductible on certain goods, expenses (phone, energy, petrol, publicity, etc.) and investments (car, machinery, computer, plane, etc.) used by the VAT -liable business.

The normal VAT rate is 15%.
The following other rates can apply: 12%, 6%, or 3%.

See here the list of VAT rates for the delivery of goods and the supply of services. On the 1st July 2003, the new European Community Directive on services provided by electronic means (E-Commerce) came into effect. With this directive, Luxembourg is set to become the most competitive country in the field. Setting up a company in the Grand Duchy of Luxembourg is now very attractive, as V.A.T. will be due in Luxembourg on all goods and services provided, when customers are individual residents of one of the EC countries. The applicable rates are listed above (see here our chapter on E-Commerce).

Some VAT incurred by foreign enterprises in Luxembourg can be claimed back annually via a specific procedure. This procedure is applicable in all European Countries.

The non-deductibility of costs for Holding companies may have a strong impact. Therefore, using proper structures to limit the amount of charges incurred due to the impact of VAT is a good idea. For services provided by consultants, lawyers, accountants, etc. VAT can be reduced to 12%. Grouping costs in association can also be a good way to reduce these charges.

When a VAT-registered company imports goods, Luxembourg does not claim VAT. The VAT can simply be declared via the reverse charge principle. The consequence of this is that the costs linked to the pre-financing of VAT are lower (or nil). This is an important advantage for companies which import goods for businesses in Europe.

Other advantages are that VAT is fully reclaimable on the purchase (or lease) and maintenance costs of cars, ...

Non-EU companies registering for VAT in Luxembourg are required to pay only a small deposit.

VAT rate modification applicable for several provision of services

From 1st January 2007, the VAT rate applicable to liberal profession services (lawyer, accountants, chartered accountants, architect, auditor, technic engineering, consultant, ...), services provided by travel agencies and travel tour organisers, advertising services will be liable to a VAT rate from 12 % (intermediate rate) to 15% (standard rate), in accordance with 4th article, §5 of the law on expenses and receipts of the state for 2007 financial year.

3% VAT on audio visual services

The Luxembourg Government has a strong commitment to broadening Luxembourg's appeal in terms of business development. In this vein, the Government has adopted a notice allowing reduction in the VAT rate applicable to "radio and TV broadcasting services". This measure applies to the supply, against consideration, of TV and radio programs, whatever the transmission means, and allows the application of 3% VAT as from 1 January 2006. This change is clearly to be seen as an additional tailor made tax incentive for foreign investors who envisage establishing their business in Luxembourg.

The priority of this new provision is not the narrow national market, but is rather intended to attract radio and TV broadcasting services for customers domiciled in other Member States of the European Union. The intent is thus to focus on the exports from Luxembourg of pay-audiovisual services to other countries of the European Union.

The means of transmission does not play a role, as the grand-ducal decree foresees that the programs can be :

terrestrially broadcasted,
in analog or numerical form,
via cable networks,
satellite,
over the Internet,
ISDN,
through mobile phone networks.

Luxembourg is undoubtedly making an effort to adapt itself to innovations in technology, by also offering the possibility to apply this 3% rate to programs which are only supplied over the Internet or through mobile phones networks.

Some restrictions do not enter the scope of the measure :

pornographic productions,
TV distribution,
download of films over the Internet

Luxembourg now offers the lowest VAT rate among the Member States, including the 10 new ones, for this type of service, based on European commission's report of July 2005(DOC/1635/2005).