Luxembourg Tax Alert 2020-20

Luxembourg Tax Alert 2020-20

1000

Contact

Related content

Brexit is coming….

Along with Santa Claus, we also expect Brexit to arrive end of December 2020. In order to avoid any (unforeseen) surprises when dealing with your transactions as of 1 January, we recommend reading the below.

As a reminder, the United Kingdom left the European Union on 31 January 2020. However, in light of preparing the Brexit and preserving the European Union’s best interests [1], the EU and UK agreed on setting up a transition period until 31 December 2020. During the transition, the UK is still considered a Member of the EU for VAT purposes, i.e. no impact on taxation has to be observed during this period.

It is clear now however, that this period is soon coming to an end and the consequences of the withdrawal of the UK from the EU should be examined from an indirect tax perspective.

This alert aims at emphasizing and summarizing the main points of attention for companies when dealing with a UK counterparty, as regards supplies of goods and services.

First, it has to be noted that the UK should from 1 January 2021 onward be considered as a third country for VAT purposes. As the UK will no longer be part of the single market, a tax border with the EU will be established. Therefore, Directive 2006/112/EC on value added tax should not apply anymore in the UK. The below points review the main changes as from 1 January 2021:

  • VAT consequences of Brexit on supply of goods

B2B & B2C supply of goods

Insofar as the UK will be considered as a third country from a VAT perspective, the supply of goods from a Luxembourg established company to a UK established company should be considered as an export. Such export should benefit from an exemption under the Luxembourg VAT Law.

However, operators have to be aware that there may be customs implications associated to their sales (i.e. the merchandise should be examined before leaving the EU customs territory, a customs declaration has to be completed and in order to benefit from the VAT exemption a proof of exit from the EU should be kept by the operator). In order to justify the VAT exemption on the sale from Luxembourg to the UK, the seller should at least keep the customs declaration.

As regards the B2C sales of goods, the distance sales scheme will no longer apply, and the supply will be considered as export as well.

UK VAT consequences should also be carefully monitored.

B2B & B2C acquisition of goods

From now on, the goods arriving in Luxembourg and dispatched from the UK should be considered as imports. As such, the Luxembourg importer of records should declare the operation of import at the first point of entry in the EU and pay VAT (rate depending on the good acquired) on these imports to the custom authorities.

In case you are an individual acquiring goods in the UK and taking them back to Luxembourg, you will also need to respect the threshold set up for custom duties (430 EUR/person for air travel).

Custom duties consequences should as well be carefully monitored in case of a no-deal Brexit.

  • VAT consequences of Brexit on supply of services

B2B supply of services

The services supplied by a Luxembourg established company to a UK established entity remain taxable in the UK [2].

A contrario, should a Luxembourg established company acquire services from a UK established entity, the place of taxation will remain Luxembourg and the VAT consequences should be assessed from a Luxembourg VAT perspective. No changes should be expected in this respect.

B2C supply of services

As regards the provision of B2C TBT services to EU customers (telecommunication, broadcasting and electronic), the MOSS system should not apply anymore. The suppliers should declare the provision of such services through the new “OSS”, unless they are VAT registered in the UK.

Input VAT recovery right

Insofar as the UK should be considered as outside the EU, services which were not considered as giving rise to an input VAT deduction right should, from 1 January 2021 on, allow operators to deduct the VAT on costs related to such activities.

Particular attention should therefore be paid to the companies providing financial and insurance services under article 44, 1, c), i) as well as several fund management services rendered based on 44, 1, d) of the Luxembourg VAT Law (depending on the type of investment vehicle at issue).

  • VAT consequences summary

Transaction

Who to whom?

Tax treatment as at 1 January 2021?

Pay attention to?

Goods

B2B – LUX to UK

Export – VAT exempt in Luxembourg

Cases of the VAT returns

(Intra-Community delivery  export)

Incoterms agreed

Documentation recorded

No more ESLs

B2C – LUX to UK

Import – Taxable in Luxembourg (VAT rate depending on the category of good)

Cases of the VAT returns

(Intra-Community acquisition  import)

Services

B2B – LUX to UK

Taxable in the UK – No Lux VAT applicable

Cases of the VAT returns

Potential input VAT deduction right

Potential change of VAT regime (simplified  standard?)

No more ESLs

B2B – UK to LUX

Taxable in Luxembourg – Lux VAT applicable

N/A

B2C – LUX to UK

Taxable in Luxembourg – Lux VAT applicable

N/A

B2C TBT services – LUX to UK

Declared through OSS (1st June 2021) or local registration

Where no OSS applicable/check UK regulations

No electronic refund procedure (Directive 2008/8/EC) possible anymore/check UK obligations

[1] As underlined by Michel Barnier in October 2019, “The Withdrawal agreement creates legal certainty where Brexit created uncertainty”

[2] Unless a derogative rule would apply (such as for real estate)

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2021 KPMG Luxembourg, Société coopérative, a Luxembourg entity and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today