Small business and tax blog

As Luxembourg and the UK are fellow states of the EC, there are complicated VAT rules affecting business carried out between the 2 countries. This post outlines the main issues as they apply to a small UK business.

Luxembourgish VAT is called ‘Taxe sur la Valeur Ajoutée’, or ‘TVA’. It is not to be confused with French VAT which has the same name.

Exporting goods to Luxembourg

A VAT-registered UK business does not need to charge VAT on goods exported to Luxembourg, provided it obtains the Luxembourgish customer’s TVA registration number (including the LU prefix) and shows it on the invoice. It must also keep documentary proof of export.

The UK business is still able to reclaim any UK VAT on the goods which it is exporting, subject to the normal rules about reclaiming input VAT.

If the Luxembourg customer is not registered for TVA, and the UK business is not registered for TVA, then UK VAT must be charged. No VAT is chargeable on goods which would normally be zero-rated or exempt when supplied in the UK (for example, books, children’s clothing and some food items).

Every year the UK business should check whether its level of sales to unregistered customers in Luxembourg requires it to register for TVA under the distance selling rules. Broadly, these require a UK business to register for TVA, and then charge TVA instead of UK VAT, if its sales of goods to customers in Luxembourg who are not registered for TVA are over €100,000 in a calendar year. Such a registration is also optional at lower levels of sales, and as rates of Luxembourgish TVA are among the lowest in the EU, this is worth investigating.

Importing goods from Luxembourg

A UK business importing goods from Luxembourg should give the Luxembourgish supplier its UK VAT registration number so that Luxembourgish TVA does not get charged. If TVA is charged, the UK business cannot reclaim it on their UK VAT return or by a direct claim to the Luxembourgish tax authorities.

When a UK VAT-registered business imports goods from Luxembourg from a Luxembourgish TVA-registered business, the UK business should pay UK VAT on the import by including VAT in box 2 of its regular UK VAT return, at the appropriate UK VAT rate. It may then reclaim that same amount by including it as input VAT in box 4 of the same VAT return, subject to the normal rules about recovering input VAT. The reason for this apparently circular exercise is to avoid VAT distortions between buying goods in the UK and importing them from Luxembourg.

Special VAT rules for the movement of goods

Different rules may apply in certain less-common situations:

Transfers of own goods between the UK and Luxembourg within the same legal entity;
Temporary movement of goods;
Installed or assembled goods;
Movements of goods for process, repair etc;
Triangular business transactions;
Supplies to privileged persons in other EC states;
Call-off stocks;
Consignment stocks;
Excise goods;
Goods supplied on sale or return;
Samples;
Goods sent for testing;
Mobile phones and computer chips.

Details can be found in VAT Notice 725.

VAT on services

UK VAT may need to be charged on services performed in Luxembourg or to clients based in Luxembourg, depending on the type of service supplied. This is a complex area, but broadly, assuming the supplier belongs in the UK and the customer belongs in Luxembourg, UK VAT will need to be charged on most services unless one of the following exceptions applies.

UK VAT does not need to be charged on services relating to land or property situated in Luxembourg. This includes estate agency, conveyancing, architects, surveying, construction, property maintenance and repair work, hotel accommodation (unless a tour operator), defined exhibition stands, and property management services.

UK VAT does not need to be charged on most services related to a live event or physical activity carried out in Luxembourg. This includes cultural, artistic, sporting, scientific, educational, training, entertainment, exhibition, conference and valuation services. It also includes actors, singers and interpreters.

UK VAT does not need to be charged on passenger transport carried out in Luxembourg.

UK VAT does not need to be charged on most ‘intangible’ or ‘intellectual’ services received for business purposes by a customer who belongs in Luxembourg. This includes copyright, royalties, licences, other intellectual rights, advertising, consultants, engineers, lawyers, accountants, data processing, written translation, computer programming, software maintenance, web design, sound engineers and technicians, the supply of staff, banking and insurance. If the service relates to land or property situated in the UK, VAT still needs to be charged. If the service is not being received for business purposes by the customer, UK VAT has to be charged. The customer does not need to be registered for VAT for the service to qualify as being for business purposes, but some evidence of the business purpose should be obtained.

With all these services, it is important to look at the precise nature of the underlying service being provided. A business cannot turn one type of service into another by simply changing the description on the invoice.

Other types of services

Different rules may apply to certain less-common services:

Tour operators;
Letting on hire of a means of transport;
Letting on hire of goods;
Valuation or other work carried out on another person’s goods for export from the EC;
Intermediary services (generally agencies or brokers working for a commission);
Training services supplied to overseas governments;
Freight transport;
Telecommunications services;
Radio and television broadcasting services;
Electronically supplied services.

Details can be found in VAT Notice 741.

Additional services rules

The UK business is still able to reclaim any UK VAT on expenses which it incurs in providing a service which is deemed to be outside the UK, providing that the service would be taxable if it was made in the UK, and subject to the normal rules about reclaiming input VAT.

If a VAT-registered UK business receives a service from a Luxembourg supplier, and the place of the service according to the above rules is in the UK, the UK business may need to ‘reverse charge’ that service (see section 16, VAT Notice 741). If the UK business is not registered for VAT, and the service is ‘intangible’ or ‘intellectual’, the value of that service will be included in the turnover of that business in determining whether it needs to register for UK VAT.

Any service which is not subject to UK VAT under the above rules may be within the scope of Luxembourgish TVA. A UK business providing a service within the scope of TVA should consider whether it needs to register for TVA, and then charge and account for it, according to Luxembourg tax law. This is beyond the scope of this post, but more detailed information can be found here.

Reclaiming Luxembourg TVA

A VAT-registered UK business which buys goods (which are not for export) or services in Luxembourg may be able to reclaim any Luxembourgish TVA paid, by using a special refund scheme. This is available to a UK business which is not registered in Luxembourg for TVA, which has no physical presence in Luxembourg and does not make any supplies there. The claim is made in French using the specified form, and sent to the appropriate tax office in Luxembourg together with original supporting invoices and a UK VAT66 certificate.

The main contact office for information about Luxembourgish TVA is:
Bureau d’imposition X de l’Administration de l’Enregistrement et des Domaines
7, Rue Plébiscite
Boite postale 31
L-2010 LUXEMBOURG-VILLE

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