Luxembourg: VAT implications of Brexit for supplies of goods and services
Luxembourg: VAT implications of Brexit
Taxpayers in Luxembourg need to consider the indirect tax implications of “Brexit” scheduled for the end of December 2020.
As a reminder, the United Kingdom left the European Union on 31 January 2020, but a transition period applies until 31 December 2020, during which time, the UK is still considered a member of the EU for value added tax (VAT) purposes. Now that this transition period is soon coming to an end, the consequences of the withdrawal of the UK from the EU need to be examined from an indirect tax perspective.
For companies dealing with a UK counterparty, as regards supplies of goods and services, they need to note that from 1 January 2021 onward, the UK will be considered as a third country for VAT purposes. Because 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 VAT would not apply in the UK.
VAT consequences of Brexit on supply of goods
B2B and B2C supply of goods: Given that 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 (business-to-business or B2B) would be considered as an export. Such export could benefit from an exemption under the Luxembourg VAT law. However, operators need to be aware that there may be customs implications associated to their sales (that is, the merchandise must be examined before leaving the EU customs territory, a customs declaration must be completed and in order to benefit from the VAT exemption, a proof of exit from the EU must be kept by the operator). In order to justify the VAT exemption on the sale from Luxembourg to the UK, the seller would at least keep the customs declaration.
As regards the business-to-consumer or 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 also need to be carefully monitored.
B2B and B2C acquisition of goods: Goods arriving in Luxembourg and dispatched from the UK would be considered as imports. As such, the Luxembourg importer of records would declare the operation of import at the first point of entry in the EU and pay VAT (the rate depending on the good acquired) on these imports to the custom authorities. For an individual acquiring goods in the UK and taking them back to Luxembourg, that person will also need to respect the threshold set up for custom duties (€430 per person for air travel). Custom duties consequences must be carefully monitored if there is a “no-deal Brexit.”
VAT consequences of Brexit on supply of services
B2B supply of services: Services supplied by a Luxembourg-established company to a UK-established entity remain taxable in the UK. However, if a Luxembourg-established company acquires services from a UK-established entity, the place of taxation will remain Luxembourg, and the VAT consequences need to be assessed from a Luxembourg VAT perspective. No changes would be expected in this respect.
B2C supply of services: As regards the provision of B2C services to EU customers (telecommunication, broadcasting, and electronic), the mini one stop shop (MOSS) system would not apply. Suppliers would need to declare the provision of such services through the new one stop shop or “OSS” unless they are VAT registered in the UK.
Input VAT recovery right: If the UK were considered to be outside the EU, services that were not considered as giving rise to an input VAT deduction right would, beginning 1 January 2021, allow operators to deduct the VAT on costs related to such activities. Particular attention must be paid to companies providing financial and insurance services as well as several fund management services pursuant to the Luxembourg VAT law (depending on the type of investment vehicle at issue).
Read a December 2020 report prepared by the KPMG member firm in Luxembourg
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