New VAT rules from 1 January 2010 - Ernst & Young - Luxembourg

New VAT rules from 1 January 2010

By Yannick Zeippen & Jacques Verschaffel, respectively  Partner and Senior Manager, Ernst & Young, Luxembourg 

Business Review

May 2009

On March 13, 2009 the Luxembourg Government Council agreed on a draft law and draft Decrees intended to transpose the European legislation regarding the so-called “VAT package” into the Luxembourg VAT legislation. As from January 1, 2010, the rules with regard to the place of supply of cross-border services will be amended and new reporting requirements as well as new procedures for VAT refund claims by EU businesses will be introduced.

The key VAT changes and challenges for Luxembourg businesses will thus first concern the place of taxation of services supplied cross-border

Indeed, business-to-business supplies of services will, as a principle, be taxed where the customer is located. Services supplied by a foreign entity to a Luxembourg business customer will, in principle, be subject to Luxembourg VAT, to be self-assessed by the customer. For business-to-consumer services, the place of taxation will continue to be, as a principle, where the supplier is established.

However, derogations will remain for certain types of services, such as restaurant and catering services, hiring of means of transport, cultural, sporting, scientific and educational services,… for which specific rules will apply to reflect the principle of taxation at the place of consumption.

In addition and in order to easier trace these transactions between Member States, new reporting requirements will be introduced, starting with the mandatory filing of EC Sales lists of cross-border services.

Luxembourg businesses, supplying services for which the customer, based in another European Member State than Luxembourg has to self-assess the VAT that will be required to file EC Sales Lists of those services, similar to the listings already required for intra-community supplies of goods. In principle, these lists will have to be filed electronically via the Luxembourg VAT administration internet platform called “eTVA”. According to the current draft legislation, the periodicity will be monthly, with the possibility to apply for a quarterly filing. The mandatory filing of EC Sales lists of intra-community supplies of goods will remain. However, the filing periodicity will be monthly and no longer quarterly unless a certain threshold is not reached.

The draft law also laid down new rules in respect to the issuance of invoices for exempt services and the chargeable event of services supplied on a continuous basis.

Finally, 2010 will see the introduction of a new procedure for claiming the refund of the VAT incurred in a Member State by a taxable person neither established nor VAT registered in this Member State but established and VAT registered in another Member State. Based on this new procedure, applications for VAT refunds by Luxembourg businesses will have to be submitted electronically via the electronic portal hosted by the Luxembourg VAT administration, and no longer to the Member State where the VAT has been incurred. The country of establishment will adjudicate on the VAT deduction right of the applicant, before transferring the claim to the Member State of refund. A certificate of taxable status will thus no longer need to be attached to the request. Original invoices will neither have to be enclosed with the claim, but could be requested by the Member State of refund afterwards.

An appropriate management of these new VAT rules and reporting obligations will oblige Luxembourg businesses to review the VAT treatment currently applied to all services supplied or received and require them to upgrade their accounting systems when required.

Consequently and considering the risks linked to the non compliance with these rules, it is crucial that all concerned Luxembourg businesses start planning now.

Posted on 18 May 2009