Luxembourg VAT administration issues a special notice on Brexit

The Luxembourg VAT administration (Administration de l’enregistrement, des domaines) (the AED) has issued a Preparedness Notice (in English and French) seeking to clarify tax treatment following the potential UK withdrawal from the European Union in the case of a “no deal” Brexit on 29 March 2019.

Background

On 15 January 2019, the UK Parliament rejected the withdrawal agreement negotiated with the European Union (EU) under which the UK would leave the EU. This vote has added further uncertainty to the legal and tax framework that would operate in the event that no deal is agreed by 29 March 2019, the date on which the UK is due to depart.

Clear VAT rules are fundamental to ensure a smooth transition towards Brexit. With this in mind, and hoping to assist answering different VAT tax payers’ questions regarding the challenges this entails, the AED has provided general additional VAT guidelines.

No intra-community supply of goods anymore

After withdrawal, any supply of goods from/to the UK to/from the EU (including Luxembourg) will be considered as an import/export, subject to related VAT rules. The AED raises the risk of potential problems with VAT neutrality in case there is no (immediate) possibility of deduction of such VAT.

Will the supply of services be affected?

In relation to services (including financial sector activities between Luxembourg and the UK) there may be an impact regarding the place of supply of the service. The AED does not provide great detail on the precise impact that this would entail, and this should be analysed on a case-by-case basis.

Is there any change to the VAT compliance and formal obligations?

Not surprisingly, the AED clarifies that certain compliance obligations would still be applicable with respect to transactions undertaken between 01 January 2019 and 29 March 2019.

The AED reiterates that VAT taxable persons should be prepared to comply fully with such obligations, for instance anticipating that it may not be possible to check a UK VAT number in the IT.

How is VAT refund different?

The EU Council Directive 2008/9/EC of 12 February 2008 on VAT refund will no longer be available to obtain the refund of VAT paid in the UK. The AED urges all taxable persons to submit the refund for VAT paid in the UK before the 31 December 2018 as soon as possible in order to enable the residence Member State to transfer the refund request to the relevant State.

In relation to VAT paid between 01 January 2019 and 29 March 2019 or VAT paid before 01 January 2019, for which a refund request has not been submitted and transferred by 29 March 2019, a UK VAT taxable person will need to use the national procedure that implements the 13th Directive (86/560) of 17 November 1986 in Luxembourg in relation to third countries. A taxable person established in the EU in a comparable situation in the UK will have to undertake the procedure set up in the UK with respect to third countries.

Does this affect you?

While Brexit poses many challenges for businesses, both across the EU and in the UK, the AED’s notice is a helpful step which demonstrates Luxembourg’s determination to provide clean guidelines in the context of the current and complex political environment.

If you have any questions on how these changes may affect you or your business, please contact the Luxembourg tax team.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.