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Value- Added Tax Treatment of services provided within the European Union (EU)

1. Services provided to a business in Luxembourg (Business to Business, B2B)

The determination of the place of performance is the determining factor in respect of the question of where a service is taxed. It is usually the provider of the service(s) who bears the value-added tax (VAT) burden, namely the provision of the service is taxed in the domicile of the person providing the service.

Following the coming into force of EU Directives 2008/8/EC and 2008/9/EC, services provided in cases of service transactions within the EU between companies liable to value-added tax (VAT) (B2B transactions) are liable to tax in the domicile of the person receiving the service(s) since January 1st, 2010. This relocation of the valued-added tax (VAT) burden is named the reverse charge procedure. Consequently, the identification of foreign value-added tax (VAT) and/or the requirement to register for value-added tax (VAT) outwith the EU for the EU company providing a service are no longer required. This is accordingly a significant simplification for the fiscal authorities as well as for the performing companies. The performing businessperson consequently issues his commercial customers an invoice for a net sum excluding value-added tax (VAT). Notwithstanding this, the said businessperson must detail in the invoice the service(s) provided applying as having been provided in the country of the person receiving the service and who is therefore the ultimate taxpayer. Proof of the business status of the person receiving the service(s) outwith the EU is confirmed through the presenting of a value-added tax (VAT) identification number.

Following the implementation of the value-added tax (VAT) Directives in Luxembourg, the reverse charge procedure applies there also. Therefore, if an EU company provides a service to a customer in Luxembourg who liable to value-added tax (VAT), it is the latter who bears the vale-added tax (VAT) burden. The amount of the Luxembourg value-added tax (VAT) then requires to be declared to the person's tax authority and is to deduct, in accordance with the general requirements, the said tax as input tax. Notwithstanding this, the reverse charge procedure does not apply without restriction in Luxembourg. The said procedure does not apply to the provision of goods. This particularly includes construction and installation works during construction projects. In contrast thereto, the person receiving the service(s) remains the person liable to pay value-added tax (VAT) if consultation services are provided with an intellectual main theme, the provision of workers or tangible moveable property - with the exception of the renting out of vehicles. If Luxembourg is the place of performance yet the reverse charge procedure does not apply, the performing business requires to register for value-added tax (VAT) in Luxembourg with Luxembourg's Land Registration and Estates Department.

2. Services provided to a private person in the EU (Business to Consumer, BC2)

Services provided to private persons within the internal market continue to be taxed at the place from which the performing business operates. As stated above, the reverse charge procedure does not apply in such cases. Where services are provided to a private person within the EU by a Luxembourg company, the company therefore continues to bear the value-added tax (VAT) burden and consequently charges value-added tax (VAT). The rate of value-added tax (VAT) in Luxembourg is 15%. Notwithstanding this, a reduced rate applies to certain goods and services (for example, 12% for management services, 6% for raw materials and horticultural products and 3% for groceries, medical treatment, books and newspapers).


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