Luxembourg raises VAT from 1 January 2015
The Luxembourg premier today announced plans to raise the Luxembourg Value Added Tax rate. It is currently 15%, which is the lowest in the European Union.
Luxembourg has been struggling to reduce its state deficit to below 3% of GDP, one of the basic requirements of membership of the Euro currency. In addition, it had come under renewed scrutiny following the recent bail out of Cyprus. Many countries facing difficult financing conditions are raising VAT as a quick way to demonstrate to financial markets that hard decisions can be taken.
Whilst it is not yet clear what the new VAT rate will be, previous discussions have indicated a rise of 1% to 16%. The premier was quick to reassure the public that the VAT rate will remain the lowest in Europe.
The timing of the rise coincides with the withdrawal of the EU VAT loophole on the sale of electronic books, music and streamed films. Currently, many providers have located their European operations in Luxembourg so they can charge the highly competitive 15% (3% on ebooks) to consumers around Europe. From 1 January 2015, this will change to having to charge the local VAT rate of the consumer.