The Luxembourg government has submitted a new value added tax bill, law no. 8406, which outlines key changes set to come into effect on 1 January 2025. This bill will transpose two European directives and introduce several significant modifications to Luxembourg’s VAT regime. Among the changes are a restructuring of the special scheme for small enterprises, alterations to place of supply rules for digital events and new VAT developments in the art sector.

Quentin Warscotte, indirect tax partner at KPMG Luxembourg, clarified the main provisions of the upcoming VAT law that could impact businesses in a blog post on Thursday 5 September 2024.

Virtual events

One of the notable changes involves the place of supply for virtual events provided to non-taxable persons. Under the current Luxembourg VAT law, Warscotte notes, cultural, artistic, sporting, scientific, educational, entertainment or similar activities provided to non-taxable persons are taxable where the services are physically carried out. The new provision will require that virtual events be taxed based on the location of the non-taxable recipient, meaning the place where they are established, have their permanent address or usually reside. This change is expected to address inconsistencies observed among member states during the covid pandemic, as different interpretations of place of supply rules for virtual events led to discrepancies. Luxembourg suppliers will be able to fulfil their VAT obligations via the one-stop-shop system, allowing them to declare and pay VAT in the recipient’s country.

Art sector

The new VAT provisions also include changes for the art sector. Currently, the reduced VAT rate of 8% applies only to imports and domestic supplies of works of art, collectors’ items or antiques by the creators or their successors. The revised law will extend this reduced rate to all supplies of these goods, including intra-community acquisitions and subsequent resales. However, when the reduced rate is applied, taxable resellers and public auction organisers will no longer be able to opt for the profit margin scheme. Instead, a standard VAT rate of 17% will apply under this scheme.

Passenger transport

The initial version of the bill proposed removing the exemption for international passenger transport, which would have created challenges for operators and the sector. However, a recent government amendment has decided to retain this exemption, a move welcomed by the industry, said Warscotte.

Small enterprises

The special scheme for small enterprises is being restructured to reduce administrative burdens and support cross-border activities. The new provisions introduce two distinct schemes. The revised national special scheme will apply to businesses established in Luxembourg with an annual turnover not exceeding €50,000--up from €35,000--applicable only within Luxembourg. The new cross-border special scheme will apply to businesses established in Luxembourg operating in another member state or businesses from another member state operating in Luxembourg, provided their annual turnover does not exceed €100,000 or the threshold set by the member state where the scheme is applied.

Businesses using these schemes will not charge VAT on their supplies and will not be entitled to input VAT recovery. They must notify Luxembourg VAT authorities of their turnover and periodically report their supplies in Luxembourg and other member states. A temporary tolerance will be allowed if the €50,000 threshold is exceeded by up to 10%, permitting continued use of the scheme.

However, Warscotte notes that these provisions are subject to change as the legislative process progresses. Businesses are advised to stay informed to ensure a smooth transition when these changes take effect on 1 January 2025.