VAT: Will the temporary decrease in Luxembourg VAT rates for 2023 be extended?

Businesses should consider, without delay, how to revert in the most efficient manner to pre-2023 rates, starting on 1 January 2024.
 

At a glance

In 2023, most Luxembourg VAT rates were reduced. Recently, the question has been raised about whether this measure will be reconducted. Below, we examine why it is unlikely.

Following an announcement on 21 September 2022 by the Luxembourg government, a law of 26 October 2022, reduced most Luxembourg VAT rates in 2023 by 1% as a measure to fight inflation. The VAT rates changed to 16%, 13%, and 7%, instead of 17%, 14% and 8%, while the super-reduced rate of 3% remained unchanged.

A closer look

We should first mention that the law of 26 October 2022 clearly states that the reduction is for the period from 1 January 2023 to 31 December 2023. A new piece of legislation is thus necessary to reconduct the reduction. This would still be possible from a technical viewpoint, i.e., there is enough time before the Parliamentary winter holidays.

However, different elements indicate that it is unlikely that the measure would be reconducted:

• The law of 26 October 2022 was noticeably clear that the measure was for the period from 1 January 2023 to 31 December 2023. This is a first indication that the measure was meant to be temporary.
• The inflation has slowdown, making a reconduction less relevant.
• The government and the coalition of parties forming the government have changed.
• Neither of the two parties in the new coalition has mentioned any intention to reconduct the reduction of the VAT rates.

In 2022, we strongly recommended to:

i. Adapt accounting systems to ensure a timely application of the correct VAT rates.
ii. Establish invoicing procedures to apply the correct VAT rates; and
iii. Review contracts and agreements to make amendments, if required.

We also highlighted that due to the temporary nature of the VAT decrease, the same exercise in the opposite direction will be required in the near future, which would most likely been the case as soon as from 1 January 2024.

As a reminder, these VAT rates apply to various categories of goods and services defined by law (non-exhaustive table):
 

Businesses should consider, without delay, how to revert in the most efficient manner to pre-2023 rates, starting on 1 January 2024.

The Deloitte Luxembourg Indirect Tax team remains at your disposal to discuss the potential impacts of this change on your organization.