VAT online business

The VAT rules applicable to Luxembourg companies that sell online

Before examining the VAT regime applicable to an e-commerce business, a distinction must first be made between:

Companies that sell products (goods) online: these are websites that allow internet users to order a physical good online, which is then delivered to the address of their choice.
Companies that sell services online: these are websites that provide downloads or access to digital content (music, videos, software, etc.) or other online services for payment.

The July 2021 e-commerce VAT package aimed to simplify and harmonize the application of VAT within the European Union, while preventing purely tax-driven location strategies. Luxembourg companies must now ensure they fully understand these new rules and, if necessary, use the One-Stop Shop (OSS) to meet their filing obligations in full compliance.

1. The VAT regime applicable to e-commerce

1.1. Sales of products to VAT-registered professionals

For sales of goods to VAT-registered professionals, the standard rules apply:

If the customer is established in Luxembourg, the sale is subject to Luxembourg VAT.
If the customer is VAT-registered and established in another EU Member State, the sale is invoiced without VAT (reverse charge mechanism in the customer’s country, under the intra-Community supply regime).

1.2. Sales of products to private individuals (distance selling)

Since 1 July 2021, the former distance-selling thresholds per Member State (EUR 35,000, EUR 100,000, etc.) have been abolished. They have been replaced by a single annual threshold of EUR 10,000 for all sales to private individuals across the European Union.

Below EUR 10,000 per year (for all intra-Community sales to private individuals), the Luxembourg company can continue to apply Luxembourg VAT to all its sales in the EU.
Above EUR 10,000 per year (all cumulative sales to private individuals in the EU), the company must apply the VAT rate of the destination country (i.e., the country of residence of the private buyer).

In this case, there are two options:

The Luxembourg company registers for VAT in each Member State where its customers are located,
Or it uses the One-Stop Shop (OSS) to declare and pay the VAT due in the various EU countries through a single return.

Example:

A Luxembourg company sells EUR 12,000 worth of goods to private individuals located in several EU countries (France, Belgium, Germany, etc.). As soon as the annual total of EUR 10,000 in cross-border sales to individuals is exceeded, the company must charge the VAT rate of the consumer’s country. To simplify its filing obligations, it may opt for the OSS managed by the Luxembourg authorities.

2. The VAT regime applicable to online service sales

2.1. Services provided to VAT-registered professionals

Services provided by a Luxembourg company to VAT-registered professionals fall under the standard regime:

VAT is due in the country of the VAT-registered customer when the service is “located” at that customer’s establishment (reverse charge).
If the customer is established in Luxembourg, Luxembourg VAT applies.

2.2. Services provided to private individuals

For electronic services, telecommunications, and broadcasting/television services sold to private individuals within the EU, VAT is due in the Member State where the customer resides. This was one of the key rules already introduced in 2015 for “electronic services.”

Since July 2021, this principle also falls under the One-Stop Shop (OSS):

Luxembourg companies can declare the VAT due in each country of consumption via a single return submitted in Luxembourg (OSS).
They therefore do not need to register for VAT in every country where they have customers.