Vat rules applicable to Luxembourg businesses doing business online

When looking at the VAT rules applicable to e-commerce businesses, we must distinguish between businesses that sell goods online and businesses that provide services online.

• Businesses that sell goods online allow customers to order physical goods online and have them shipped to the address of their choice.

• Businesses that provide services online allow customers to order services online against compensation. It can be streaming a movie, for example.  

1) The VAT regime applicable to Luxembourg e-commerce businesses.

1.1) VAT applicable to the sale of goods to professional customers registered with VAT

When a Luxembourg business sells goods to a professional customer registered with VAT, standard rules apply (the sale is subject to Luxembourg VAT if the client is a Luxembourg based business and the sale is “without VAT” if the client is located in another EU member state).

1.2) VAT applicable when selling goods to non-professional customers

The VAT regime applicable is the mail order regime. Luxembourg businesses that sell goods to non-professional customers online need to charge Luxembourg VAT on all their sales in the EU, unless the threshold of a particular state has been crossed (see below). Once the threshold for a country has been crossed, the business must charge the local VAT for shipments to that country.

Note: the place of delivery determines the country of sale. For example, goods delivered in France will be considered a French delivery regardless of any other factor (nationality of the customer, country of the credit card used…)

Example:

A Luxembourg e-commerce business sells books online. Its annual turnover is 400 000€ split between customers in France, Luxembourg, Romania, Bulgaria and Belgium in the following way:

130.000 EUR before VAT shipped in Luxembourg

120.000 EUR shipped in France

80.000 EUR shipped in Bulgaria

50.000 EUR shipped in Romania

20.000 EUR shipped in Belgium

Goods shipped to Luxembourg are subject to Luxembourg VAT (at the super reduced 3% rate applicable to books). The same is true for goods shipped to Belgium since the threshold has not been crossed.

However, the thresholds have been crossed for shipments to France, Bulgaria and Romania. Consequently, the Luxembourg business will have to register with VAT in France, Romania and Bulgaria (on top of Luxembourg) and to apply the rate of 5.5% for shipments to France, 9% for shipments to Romania (the reduced rate on books) and 20% on shipments to Bulgaria (the standard rate).

Note: the rates indicated are the actual rates since the LPG Group has offices in Luxembourg, France, Switzerland, Romania and Bulgaria.

2. The VAT regime applicable to Luxembourg businesses selling services online

2.1) VAT applicable when selling services online to professionals subject to VAT

Standard rules apply as in paragraph 1.1.

2.2) VAT applicable when selling services online to non-professionals

Luxembourg businesses that sell services online to EU non-professionals (or to professionals not registered with VAT) need to charge the VAT of the country their customer is located in.

For example, if a Luxembourg business invoices streaming services to a French resident, the business will need to apply French VAT.

In order to easily proceed with VAT return formalities with each member state, the Luxembourg business needs to register on the platform VATMOSS and submit its returns on the platform.