Increase in VAT rates from 1 January 2024
Following the measure taken by the government at the end of the year 2022, Luxembourg VAT rates were temporarily reduced by one percentage point from 1 January 2023 to 31 December 2023 included. The super-reduced rate of 3% remained unchanged.
In the absence of legislation to extend this tax measure by the end of the year, the reduction in VAT rates in Luxembourg will therefore come to an end and the old VAT rates will be restored from 1 January 2024, as follows:
- increase in the standard VAT rate from 16% to 17%;
- increase in the intermediate rate from 13% to 14%, applicable in particular to grape wines of 13° or less, printed advertising material and the custody and management of securities;
- an increase in the reduced rate from 7% to 8%, applicable in particular to electricity, heating, the sale/rental/repair of bicycles including electric bikes, hairdressing services and plants.
In practice, however, it is not always simple to apply the appropriate VAT rates for transactions linked to two successive years in which different rates are in force.
As an example, one might legitimately ask what rate to apply to a supply of goods ordered in 2023 but not delivered until 2024, or to a service performed in December 2023 but invoiced at the beginning of 2024.
This issue is especially important for customers who do not have a full right to deduct input VAT, such as private individuals and most companies operating in the financial or real estate sectors, for example.
The principle
The determination of the VAT rate is linked to the concept of the chargeable event and the time at which VAT becomes chargeable.
In principle, the chargeable event occurs and VAT is payable when the transaction is carried out, i.e. when the supply of goods or services is completed.
For example, rents subject to VAT will have to show the VAT rate corresponding to the month concerned (16% for the rent of December 2023 / 17% for the rent of January 2024).
Exception in the event of an obligation to issue an invoice
By way of exception, where an invoice has to be issued, the VAT rate applicable will be that of the date of the invoice if it was issued within the legal deadline of the 15th day of the month following the month in which the supply was made.
This means that goods supplied and services rendered in December 2023 will still be able to benefit from the reduced VAT rates / 16%, if they are invoiced in 2023. However, if they are invoiced in 2024, the new increased VAT rates / 17% will apply.
If the deadline for issuing the invoice is not met, the date on which the legal deadline expires will be used to determine the applicable rate.
For example, a purchase of IT equipment by a Luxembourg commercial company from a local supplier in October 2023 will be subject to the 16% rate, even if the invoice is issued in 2024, since the legal deadline for invoicing is 15 November 2023.
Cross-border transactions
The same principles apply to intra-Community acquisitions of goods / intra-Community supplies of services (reverse charge at the VAT rate applicable on the date of the invoice, provided it is issued within the legal deadline of the 15th day of the month following the transaction).
Advance payments
Advance payments are subject to special rules. For example, the VAT rate applicable to an advance payment is the rate in force at the time of collection. VAT then applies to the amount received/cashed.
However, advance payments on intra-Community supplies of goods do not follow this exceptional rule.
Credit notes
Credit notes are often encountered in practice. A credit note should include a VAT rate identical to that applied to the initial invoice, in order to avoid any VAT differential.
The VAT rate on any new invoice issued will depend on the legal invoicing deadline applicable to the initial service/delivery.
For example, a consultancy service is provided in September 2023 and invoiced in October 2023 at 16%. The credit note issued in 2024 will be subject to 16% VAT. If a new invoice is issued, although dated 2024, it will still be subject to the 16% rate (the VAT rate applicable on the date on which the legal deadline for invoicing the consultancy expired, i.e. 15 October 2023).