How will Luxembourg’s VAT change from 1 January 2025?

At a Glance

Luxembourg businesses should examine whether they are affected by these changes and adapt accordingly.

A closer look

On 26 June 2024, the Luxembourg government has approved a draft bill to implement  changes imposed by two EU Directives. The draft bill will now follow the normal legislative process, including the vote by the parliament after the advice of the State Council.  It is intended that these changes will enter into force on 1 January 2025.

The first measure concerns the small enterprise scheme. The threshold should be raised from € 35,000 to € 50,000 ex VAT per year of turnover realized in Luxembourg. In line with the Directive 2020/285, this threshold would not only apply to domestic transactions (as is the case at the moment), but also, under certain conditions, when activities are performed on a cross-border basis (e.g., selling goods or providing services to a client established or resident in another EU Member State). The law outlines the required procedure. This modification should increase the effectiveness of this scheme in a country like Luxembourg, where cross border transactions are numerous.

In addition, the draft bill proposes removing the margin taxation scheme for work of arts, second-hand goods, collectors’ items, and antiques. Instead, it suggests introducing a reduced VAT rate of 8%.

As other Member States have adopted similar measures, this change will certainly help maintain Luxembourg’s competitiveness as a place of choice for trading, particularly in artworks.

The draft bill also foresees changing the place of taxation for access to cultural, artistic, sporting, scientific, educational, entrainment events, or similar activities, such as fairs and exhibitions. Currently, the place of taxation is always where the event takes place. As from 2025, this rule will apply only to physical access. For virtual events, the place of supply will be where the client is established or resides.  This may complicate VAT obligations for service providers, especially when the client is a non-VAT taxable person residing in another Member State. However, it will also modernize and align the VAT treatment of virtual events with current practices of the modern world.

Lastly, the draft bill intends to abolish the VAT exemption for the passenger transport to or from a foreign country. This modification may create additional complexity for Luxembourg and foreign companies involved in international passenger transport, as Luxembourg VAT will only apply to the part of the journey within Luxembourg. This means, companies will need to review their transactions carefully and adapt systems in advance.