Luxembourg: EU VAT changes postponed until July 2021

Initially scheduled for January 1 2021, EU changes to the VAT treatment of goods and services supplied to mainly non-taxable VAT persons has been postponed until July 1 2021 due to the global health crisis.

These changes aim to ensure taxation in the member states of consumption which, for goods, usually is the state where the goods are made available to the client, and, for services, the state of residence of the beneficiary. They also impose obligations on electronic platforms and extend the use of the ‘one-stop-shop’ (OSS) scheme for the payment of VAT.

Meanwhile, the UK is set to introduce a number of VAT rules relating to e-commerce and sales of low value goods entering the UK market from January 1 2021, that largely mirror the EU proposals.

E-commerce has increased purchases of goods from non-EU suppliers, which escape the VAT normally due, with negative impacts for the competitiveness of EU businesses and the tax receipts of EU countries. This has also reinforced distortions within the EU in favour of member states applying lower VAT rates. The 2021 changes aim to tackle these issues.

Goods originating from non-EU countries are taxed as imports by the EU member state where they enter for the first time (or in the member state where they exit based on a customs arrangement). From July 1 2021, the ‘distance sale of imported goods’ regime will replace the regime for goods valued at less than €150 ($172) except, for example, goods subject to excise duties, such as alcohol and tobacco. The VAT will be due in the member state where the goods are made available to the client. Sellers will not have to register in all the different member states where the goods are made available.

They will be able to use the ‘one-stop-shop for imported goods’ scheme (IOSS), which allows the payment of VAT due in different member states via a single electronic return filed in one member state without the costs of multiple VAT registrations. A similar scheme has been used for several years by providers of cross-border telecommunications, broadcasting, and electronic services. In addition, the exemption for low-value goods (€22 or less) will be abolished because it constitutes a substantial source of fraud.

To ensure that the VAT due pursuant to the rules is effectively paid, electronic platforms that ‘facilitate’ distance sales of imported goods in consignment with an intrinsic value lower than €150 will be, from July 1 2021, responsible for the VAT due on these transactions. ‘Facilitate’ means allowing a seller and a purchaser to get in contact and to execute a sale of goods but excludes situations where the intervention of the platform is limited, such as re-routing the client to another platform or handling the payment.

The same obligation will apply when electronic platforms facilitate the sale of goods made in the EU by non-EU established sellers, irrespective of the goods’ value.

The special ‘distance sales’ regime is applicable to goods sold to non-taxable persons and some categories of taxable persons established in a member state other than the state of the seller if the goods are transported by or on behalf of the seller. Under this regime, the seller has to register and charge local VAT in the member state where the goods are made available to the client when the seller’s sales exceed a threshold fixed in each state (generally, €35,000 per year).

From July 1 2021, the national thresholds will be replaced by a single EU threshold of €10,000 for distance sales of goods and cross-border services, eliminating the VAT advantage of sellers established in member states applying lower VAT rates. The OSS will be available to pay the VAT owed to each member state, eliminating the need for multiple VAT registrations.

Under the existing VAT rules, in a business-to-consumer (B2C) framework, service providers may be required to register in other member states because their services are taxable in a member state other than the one where they are established. It is the case, for example, of real estate-related services (location of the property); sports, physical training, and similar activities (location of physical execution); or the leasing of means of transport (location where the means of transport is made available).

From July 1 2021, in such situations, service providers will be able to use the OSS to remit the VAT due to the local VAT authorities instead of having to register for VAT.

Concerned businesses benefit from an unexpected delay of six months. They should use this time to determine the impact of these VAT measures and take any necessary actions.

Christian Deglas

T: +352 45145 2611

E: cdeglas@deloitte.lu

Michel Lambion

T: +352 451 453 993

E: milambion@deloitte.lu

Eric Reolon

T: +352 45145 3677

E: ereolon@deloitte.lu