It is therefore important to review the VAT treatment of cross-border transactions with the UK. Below you will find a brief summary of the main changes in this regard.
1) Supply of goods
Note that Northern Ireland is still considered part of the EU for supplies of goods, meaning that all movement of goods between Northern Ireland and Member States are to be considered as intra-Community transactions subject to EU VAT rules.
-
B2B
As from 1 January 2021, any supply of goods transported from
Luxembourg to the UK qualifies as an export of goods, instead of an
intra-Community supply of goods (“ICS”). From an
invoicing perspective, this qualification does not entail adverse
VAT consequences, as both ICS and exports are VAT-exempt in
Luxembourg. Naturally, however, Luxembourg companies should
anticipate new customs formalities. On the compliance side, export
transactions need no longer be included on an EC Sales List
(“ESL”), and should be reported in a different box on
the Luxembourg supplier's VAT return: box 014 of the annual
VAT return form instead of box 013. Finally, note that the
application conditions for securing VAT-exempt status differ
substantially between ICS and exports, especially in light of the
implementation of Quick Fixes.
For the reverse route, i.e. for acquisitions by Luxembourg
companies of goods transported from the UK to Luxembourg, this type
of transaction now qualifies as an import of goods instead of an
intra-Community acquisition of goods (“ICA”). In
practice, this new qualification does not automatically have
particular VAT consequences, as both types of transaction are
subject to VAT in Luxembourg. On the compliance side, such imports
are to be reported in a different box on the Luxembourg VAT return:
box 065 of the annual VAT return form instead of box 051.
In the case of supplies of goods without transport, sales are
subject to VAT in the place where the goods are located at the time
of the supply, i.e. outside the EU if located in the UK (and thus
clearly subject to UK VAT).
-
B2C
For B2C transactions, the distance sales regime no longer
applies, and any supply with transport made by a Luxembourg company
to a UK private individual is to be treated as an export from a
Luxembourg perspective. Prior to Brexit, Luxembourg companies
selling goods to UK private individuals for a total annual amount
below the UK threshold (GBP 70,000.00) could directly apply
Luxembourg VAT to the relevant invoices. As from January 2021,
however, Luxembourg companies must treat sales toward UK private
individuals as VAT-exempt exports of goods, and should anticipate
customs formalities.
For the reverse route, supplies of goods by UK companies to
Luxembourg private individuals qualify as taxable imports in
Luxembourg. Prior to Brexit, UK companies selling goods to
Luxembourg private individuals for a total annual amount below the
Luxembourg threshold (EUR 100,000.00) could directly apply UK VAT
to the relevant invoices. As from January 2021, however, UK
companies must treat sales toward Luxembourg private individuals as
VAT-exempt exports of goods (which will be considered VAT-taxable
imports of goods in Luxembourg).
2) Supply of services
-
B2B
The general B2B “place of supply” rule remains
unchanged; i.e. services are taxed in the recipient's place
of establishment. Accordingly, a Luxembourg law firm supplying
legal services to a UK company would still issue its invoices
without Luxembourg VAT, under the reverse charge mechanism.
However, it is no longer necessary to include to the foreign VAT
number of the UK company or to report the transaction on an
ESL.
For the purposes of tax declaration, such services are to be
reported by Luxembourg companies in box 019 of the VAT return
(instead, pre-Brexit, of box 423 in the case of taxable services,
and box 424 in the case of VAT-exempt services).
Although the reverse charge mechanism remains unchanged in this
respect, the input VAT recovery right linked to certain services
supplied by Luxembourg companies to UK companies could be
positively impacted. As from January 2021, Luxembourg companies are
now entitled to deduct input VAT for financial and insurance
services provided to UK companies. As a consequence, the VAT status
of Luxembourg holding companies that grant loans to UK borrowers
has changed: instead of the simplified VAT regime, the regular VAT
regime must now be used if the new right of VAT deduction is to be
exercised (even partially). Similarly, Luxembourg companies that
are merely involved in a UK financing activity and that were not
required to register (i.e. because there was no receipt of taxable
costs from foreign suppliers) are now required to register under
the regular regime for VAT purposes due to their entitlement to the
VAT deduction right. Particular attention should therefore be paid
to the VAT compliance obligations of Luxembourg companies providing
financial and insurance services to UK recipients.
-
B2C
In case of B2C supplies of services, the place of taxation is the supplier's place of establishment, with the exception of cases in which the B2C recipient is located outside the EU and the supply concerns advertising, IT, consultancy, banking, financial or insurance transactions (among others). Previously for such transactions (pre-Brexit), Luxembourg suppliers had to apply Luxembourg VAT for the relevant invoices to UK non-taxable persons. Now, VAT no longer applies as from January 2021.
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VAT refund
UK taxable persons can incur Luxembourg VAT on some types of
expense, such as representation costs. As from January 2021, UK
taxable persons are required to use the VAT refund procedure under
the 13th VAT Directive. On the reverse route, if a Luxembourg
taxable person were to incur UK VAT, it would have to contact the
UK VAT authorities in order to determine the VAT refund process, if
any. Note that UK VAT incurred on transactions carried out in 2020
can still be subject to a VAT refund request through the Luxembourg
VAT refund portal until 31 March 2021.
Below you will find a table summarising the main Luxembourg VAT
impacts arising from Brexit.
VAT impacts of Brexit
Nature of the supply |
Status of the parties |
Flow |
Lux VAT treatment |
Reporting on the annual VAT return form |
Reporting on the ESL |
Customs formalities |
||||
Pre-Brexit |
Post-Brexit |
Pre-Brexit |
Post-Brexit |
Pre-Brexit |
Post-Brexit |
Pre-Brexit |
Post-Brexit |
|||
Supply of goods with transport |
B2B |
Lux to UK |
ICS – VAT exempt |
Export – VAT exempt |
Box 013 |
Box 014 |
Yes |
No |
No |
Yes |
UK to Lux |
ICA – subject to Lux VAT |
Import – subject to Lux VAT |
Boxes 051/056 |
Boxes 065/407 |
No |
No |
No |
Yes |
||
B2C |
Lux to UK |
Subject to Lux VAT (if below the distance sale threshold) |
Export – VAT exempt |
Boxes 037/046 (if below the distance sale threshold) |
Box 014 |
No |
No |
No |
Yes |
|
UK to Lux |
Subject to UK VAT (if below the distance sale threshold) |
Import – subject to Lux VAT |
N/A |
N/A |
N/A |
N/A |
No |
Yes |
||
Supply of taxable services |
B2B |
Lux to UK |
Subject to UK VAT |
Subject to UK VAT |
Box 423 |
Box 019 |
Yes |
No |
No |
No |
UK to Lux |
Subject to Lux VAT |
Subject to Lux VAT |
Boxes 436/462 |
Boxes 463/464 |
No |
No |
No |
No |
||
B2C |
Lux to UK |
Subject to Lux VAT |
Subject to Lux VAT (except in certain situations with no Lux VAT) |
Boxes 037/046 |
Boxes 037/046 (except in certain situations requiring Box 019) |
No |
No |
No |
No |
|
UK to Lux |
Subject to UK VAT |
Subject to UK VAT (except specific UK exemptions) |
N/A |
N/A |
N/A |
N/A |
No |
No |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.