The Luxembourg draft law No. 8406 primarily aims to transpose Directive (EU) 2020/285 of 18 February 2020 concerning the special scheme for small enterprises, as well as Directive (EU) 2022/542 of 5 April 2022 concerning the rules for taxing virtually supplied events and value-added tax rates.

These new provisions will come into effect from January 1, 2025.

Here is a summary of the key changes introduced by this bill:

 

1 / VAT exemption: National and cross-border levels

The new provisions concern the regime applicable to small businesses (exemption regime).

 

1.1 / National VAT exemption level

Businesses whose economic activity is based in Luxembourg and whose annual turnover is below a certain threshold benefit from the national VAT exemption regime. This threshold is currently €35,000.

Bill No. 8406 proposes to raise it to €50,000 starting from January 1, 2025.

Bill No. 8406 also introduces a new tolerance to maintain the exemption regime if the threshold is exceeded by no more than 10%.

 

1.2 / Cross-border VAT exemption level

The new cross-border exemption regime coming into effect in 2025 will allow taxable persons established in a European Union member state to benefit from the exemption regime in other EU member states.

What are the conditions?

  • The taxable person's annual turnover in the EU must not exceed €100,000.
  • A Luxembourg-based taxable person meeting this condition must also check the applicable national exemption threshold in the desired country. Specifically, their annual turnover in the concerned member state must not exceed the national exemption threshold set by that country.
  • The taxable person must notify the Administration for Registration, Domains, and VAT of their intention to benefit from the exemption regime in another member state. Additionally, they must submit quarterly declarations of their turnover in each member state. The notification and declarations must be made through the MyGuichet.lu platform.

It is also important to note that this bill introduces the possibility for small European businesses not established in Luxembourg to access the Luxembourg national exemption regime:

What are the conditions?

  • The taxable person’s annual turnover in Luxembourg must not exceed €50,000.
  • The taxable person’s total annual turnover within the EU must not exceed the cross-border threshold of €100,000.
  • The taxable person must notify the member state in which they are established of their intention to benefit from the exemption regime in Luxembourg.

 

2 / VAT location for virtual events

Access to cultural, artistic, sporting, scientific, educational, entertainment, or similar events is currently taxed at the location where the event physically takes place.

Starting from January 1, 2025, virtual events will be taxed at the place of establishment or residence of the participants, whether they are professionals (B2B) or individuals (B2C).

In the case of non-taxable participants (B2C), the taxable person will have the option either to register for VAT in each member state where participants reside to declare and remit the VAT collected to the competent VAT authorities, or to declare these transactions through the OSS system.

 

3 / VAT reform for art objects: Impact on the 8% reduced rate and margin scheme

Currently, Luxembourg art galleries pay VAT at a reduced rate of 8% on certain art purchases, without being able to deduct this VAT, and apply the standard 17% VAT rate on the margin earned when reselling the art.

Directive 2022/542 prohibits the combination of a reduced VAT rate on purchase and the application of VAT on the margin at resale for such goods starting January 1, 2025.

As a result, resellers (art galleries, art agents) will no longer be able to apply the margin scheme on resales of works purchased at the reduced 8% VAT rate, but they will be able to apply the 8% VAT rate to the sale (unless the margin scheme applies) and deduct the VAT on their purchase.

 

The In Extenso Belux team is available to help assess the impact of these changes on your sector. We will, of course, keep you informed of any developments concerning this bill before its final adoption.

 

Source: Bill No. 8406 transposing Directives (EU) 2020/285 of February 18, 2020, and (EU) 2022/542 of April 5, 2022.