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The Luxembourg government has introduced VAT bill 8406, which proposes the implementation of two key European Directives starting from 1st January 2025.
This legislation introduces important changes affecting various business sectors, including small enterprises, virtual events and the art industry. These adjustments aim to simplify VAT procedures, enhance clarity on cross-border transactions and modernise the rules in line with the evolving digital economy.
Key VAT Changes Impacting Businesses
Change in VAT rules for virtual events
One of the major updates involves the place of supply rules for virtual events. Under current Luxembourg VAT law, services such as cultural, artistic, sporting, scientific, educational and entertainment activities provided to non-taxable individuals are taxed at the location where the service is physically provided. The upcoming modification will adjust this rule for virtual events, making them taxable where the recipient is located (where they reside or have a permanent address).
This change will help standardise the VAT treatment of virtual events across the EU. The rapid increase in virtual events during the COVID-19 pandemic exposed inconsistencies in how member states interpreted the place of supply for services related to virtual events. By introducing this new provision, the Luxembourg government aims to eliminate these disparities and create a more harmonised approach to VAT for digital services.
Additionally, businesses offering virtual events in Luxembourg will be able to utilise the One Stop Shop (OSSOSS (One-Stop Shop): An EU VAT system allowing businesses to report and pay VAT for cross-border sales in a single EU member state.) system. This allows them to fulfil their VAT obligations in EU countries where they do not have a physical presence, making it easier to declare and pay VAT due in the customer’s country of residence.
VAT rate changes in the art sector
Another significant change is the adjustment of VAT rates for the art sector. Currently, an 8% reduced VAT rate applies to the import and domestic sale of works of art, antiques and collectors’ items only when sold by the original creators or their legal successors. However, starting in 2025, this reduced VAT rate will be extended to all sales, including intra-EU acquisitions and resales.
That said, there are certain restrictions. Businesses that opt to apply the reduced 8% VAT rate will no longer be able to use the profit margin scheme, which allows them to calculate VAT only on the profit margin of the goods sold. If the profit margin scheme is used, the full 17% VAT rate must be applied instead.
International passenger transport exemption maintained
Initially, the new bill proposed removing the VAT exemption for international passenger transportation services, which would have had a considerable impact on operators in that sector. However, following discussions, a recent amendment to the bill now preserves this exemption, much to the relief of the industry.
Overhaul of the special VAT scheme for small enterprises
Luxembourg is also planning to revise its VAT scheme for small enterprises. Currently, businesses can benefit from a VAT exemption only if they are based in the member state where VAT is due. The new legislation will introduce two distinct schemes to support small businesses and simplify cross-border transactions:
- National special scheme for small enterprises: This applies to businesses established in Luxembourg that operate exclusively within the country. The turnover threshold for this scheme will be increased from €35,000 to €50,000 annually.
- Cross-border special scheme for small enterprises: This new scheme will apply to businesses operating across EU borders. Under this scheme, businesses established in Luxembourg can benefit as long as their total EU-wide turnover does not exceed €100,000. The same threshold applies for foreign enterprises operating in Luxembourg, provided they do not make intra-EU acquisitions of goods in the country.
For businesses using either scheme, VAT will not be charged on their supplies, but they will also forgo the right to deduct input VAT on costs. To further ease the burden, the law allows businesses exceeding the turnover threshold by up to 10% to temporarily remain under the special scheme.
Both national and cross-border businesses benefiting from these schemes will have reporting obligations, such as informing the Luxembourg VAT authorities about their previous year’s turnover or providing periodic reports for cross-border activities.
Anticipate and adapt to the new VAT rules
While these provisions are not yet final and may still undergo changes before their official implementation, businesses in Luxembourg should begin preparing now for these upcoming VAT adjustments. With the new rules set to take effect on January 1, 2025, understanding these changes will ensure a smooth transition and help avoid compliance issues.
The new VAT measures reflect Luxembourg’s efforts to modernise tax regulations and simplify procedures, making it easier for businesses to operate both domestically and across EU borders.
