Recently, the new Government confirmed a future increase of the VAT rates. This assertion is in accordance with the Luxembourg authorities’ willingness to improve public finances through, amongst other, the increase of fiscal receipts. To keep up with this trend, a Grand Ducal Decree was already issued in April 2013 and provides for amendments regarding the optional VAT exemption scheme for so-called “small businesses”, whilst also modifying the filing periodicity rules.
Increase of the VAT rates
On 14 January, the Luxembourg Finance Minister confirmed a 2 percent increase for the main VAT rates (15 to 17%, 12 to 14% and 6 to 8%), whereas the 3% rate applied on basic necessity products would remain unchanged. The new rates would not apply before 2015, though this is still under discussion at Government level.
Amendments to the so-called “small businesses” scheme
Based on the Grand Ducal Decree, taxable persons subject to the exemption regime must therefrom declare and pay VAT due on intra-Community acquisitions and on supplies of services subject to the reverse charge mechanism, as well as declare services they supply in other EU Member States. Furthermore, they are also liable to communicate their annual turnover to the VAT authorities on a yearly basis, before 1 March of the following year. Taxable persons subject to the exemption regime may opt for the standard regime on taxable transactions, but may no longer benefit from the graduated tax relief as provided in the former Grand Ducal Decree.
Conversely, taxable persons subject to the standard regime may request to benefit from the exemption regime. The transition from the standard regime to the exemption regime shall take effect on 1 January of the year following the reception of the request by the VAT authorities. If the VAT has not been collected at the time where the exemption regime becomes applicable (i.e. revenue regime), a recapitulative VAT return should be filed in order to perform any VAT regularization before the coming into effect.
The effect of these new provisions is to limit the application of the exemption regime to businesses suffering local costs only. Hence, it clearly imposes taxation on the intra-Community acquisitions of goods and acquisitions of services which was not the case under the previous regime. Finally, the obligation to register for VAT is new.
Modifications to the VAT filing periodicity
The new provisions extend the filing obligation of the periodic VAT returns regarding transactions for which the taxable person is liable for VAT (i.e. acquisition of intra-Community goods and non-VAT exempt services subject to the reverse charge mechanism), while relieving the compliance burden for companies supplying electronic services.
Regarding the filing obligations, the Grand Ducal Decree sets the following new thresholds for the filing of the periodical VAT returns by taxable persons:
- Monthly VAT return : if the net annual turnover or the total amount of intra-Community acquisitions of goods and acquisition of services subject to the reverse charge mechanism is above EUR 620’000. An annual recapitulative VAT return should be filed before 1 May of the following year;
- Quarterly VAT return : if the net annual turnover or the total amount of intra-Community acquisitions of goods and acquisition of services subject to the reverse charge mechanism is equal or below EUR 620’000. An annual recapitulative VAT return should be filed before 1 May of the following year;
- Annual VAT return : if the net annual turnover or the total amount of intra-Community acquisitions of goods and acquisition of services subject to the reverse charge mechanism is equal or below EUR 112’000. This return should be filed before 1 March of the following year.
However, the above thresholds do not apply to taxable persons supplying e-services. In this respect, the filing periodicity of the VAT returns may be modified based on the following:
- Monthly (and annual) VAT returns : if the net annual turnover (e-services excluded) is above EUR 620’000 per year;
- Quarterly (and annual) VAT returns : if the net annual turnover (e-services excluded) is equal or below EUR 620’000 per year;
- Annual VAT return : if the net annual turnover is equal or below EUR 112’000 per year.
These measures enable the VAT authorities to collect VAT effectively due to the Luxembourg State on a more regular basis, ensuring budgetary receipts throughout the year.
Practical details on the implementation of the new periodicity rules (i.e. potential changes to the VAT return forms) have not yet been specified by the Luxembourg VAT authorities, but this point should most likely be clarified shortly by authorities.
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