The Luxembourg Ministry of Finance has provided further details to the proposed increase in VAT to compensate for the EU change of place of supply rules on digital products in 2015.
The Luxembourg VAT rise had initially been thought to be 1%, from 15% to 16%. Luxembourg had been eager to retain the lowest VAT rate in the EU. However, the Ministry has now confirmed a larger rise to the standard VAT rate, and rises to some of the reduced VAT rates, as follows:
|VAT rate||2014 rate||2015 rate||Which goods/services|
|Standard||15%||17%||All other goods and services|
|1st reduced||12%||14%||Wine, domestic fuels, advertising|
|2nd reduced||6%||8%||Window cleaning, bicycles|
|3rd reduced||3%||3%||Foodstuffs, print books, E-books, pharmaceuticals, medical, public transport|
From 1 January, alcohol sold in restaurants will move from the super reduced rate of 3% to the new standard rate of 17%.
From 1 January 2015, the place of supply for B2C sales of digital, telecoms and internet services will switch from the location of the supplier to the location of the consumer.
Digital goods include: downloadable films, books, games, Apps and internet telephony.
For almost ten years, large digital service providers (Amazon Kindle, Skype, Netflix and Microsoft etc.) have located their European headquarters in Luxembourg. This has enabled them to benefit from the loophole, and charge consumers across Europe the reduced Luxembourg rate of 3%.
When this changes in 2015, providers will have to charge the appropriate national VAT rate of their customer.