VAT Rates in Luxembourg
VAT Deduction Limits in Luxembourg
Input VAT is generally deductible as long as the goods or services are used for business purposes.
There are no particular VAT deduction rules. Travel expenses, vehicles, including the fuel, business gifts, and training and conference tickets are 100% deductible if related to a business use.
A valid and fully compliant VAT invoice must be issued for each expense on which VAT is deducted.
Check the official information about input VAT deduction in Luxembourg. Also, Art. 48 of the Luxembourgish VAT Law regulates this topic.
Statute of Limitations in Luxembourg
The statute of limitations is five years in Luxembourg. However, there is an extended prescription period of ten years in case no return was filed.
The statute of limitations period determines the periods on which the tax authority can go back to review the information declared, and apply additional VAT assessments, penalties or interests.
The statute of limitations also determines the period a taxpayer can voluntarily correct any errors on past submissions, as well as deduct input VAT. This is four years. A valid VAT invoice or customs document is required to claim for input VAT refund.
Tax point rules in Luxembourg
The tax point is the time when VAT becomes due. VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.
- General rule: When the supply of goods or services is subject to the mandatory issuance of an invoice, then the tax point is by the of issuing the invoice. If you have not issued an invoice, then VAT is due by the time of the supply of the goods or services, or by the time a prepayments or advanced payment is received.
- Prepayment: when there is an obligation to issue an invoice and it is issued with the prepayment, then VAT is due before the 15th of the month following the month during which the transaction takes place. In case there is no obligation to issue an invoice, the tax point is at the time of receiving the prepayment.
- Continuous supplies of services: if the customer is liable to self-assess the VAT, then the VAT becomes due by the end of the calendar year.
- Intra-Community acquisitions and supplies: Tax point occurs on the invoice date or the 15th day of the month following the month in which the invoice was issued, whichever occurs earlier.
- Import: Tax point occurs when the goods are imported according to the relevant import documents.
This is regulated in Art. 24 of the Luxembourgish VAT Law.
Use and enjoyment rules
When it comes to establishing the place of supply of a transaction, Member states may deviate from the general rules for B2B and B2C services according to the place where the services have been used and enjoyed. This exception may be introduced to avoid double taxation (positive use and enjoyment rules), to avoid non-taxation (negative use and enjoyment rules), or both.
Luxembourg has introduced the use an enjoyment clause in the following two scenarios:
- Telecommunication and broadcasting services B2B that are used and enjoyed in a third country, are taxable where they are used and enjoyed (even though following general rules, the services was initially taxable in Luxembourg).
- Transport of goods services B2B are deemed to be taxable abroad when the actual use and enjoyment is performed in a country outside the EU.
Luxembourgish Bad Debt Relief
Bad debt refers to an unpaid invoice for which the Supplier has paid the VAT to the tax administration: this is, an invoice has been issued with VAT, reported in the VAT return and the VAT amount has been paid to the tax authorities but the whole price has not been collected from the customer. This is often due to the client´s bankruptcy, insolvency or simple missed payments to suppliers. In these cases, most countries allow to recover the VAT initially paid to the authorities, however, the conditions change from one country to another.
Bad debt relief refers to the possibility of recovering the VAT from that invoice. Luxembourg allows for bad debt relief when it can be reasonably expected that the customer will not pay the invoice.
The supplier must adjust the input VAT on the amount of the bad debt within 2 years since the VAT was due.
