Luxembourg VAT advantages for e-business

Luxembourg is increasingly seen as the "place to be" for businesses offering electronic, telecommunication and broadcasting services “e-services” in Europe. One particular factor that has made Luxembourg attractive to companies active in new technologies lies in the way VAT applies to these services.

There are specific VAT issues for providers of e-services established outside the EU. Non EU e-businesses are required to charge European VAT on each service supplied to European consumers at the rate applicable in the customer’s country of residence.  This can cause operational difficulties as the business has the obligation to identify the country of residence of its customers, including the potential for multiple VAT compliance obligations at a variety of rates according to where customers reside (27 EU countries with rates between 15% and 25%).

There is an opportunity to provide these e-services from a Luxembourg establishment as a way to mitigate these VAT costs. For services supplied to European customers, e-businesses duly established in the EU are required to charge VAT on their services at the rate applicable in their country of establishment.  In this case, services are subject to the same VAT rate, regardless of the EU country where the customers reside. Luxembourg has the lowest standard VAT rate (15%) in the European Union, which provides a cost savings that can be realized with a more competitive sales price or a higher seller’s margin.

Electronically supplied services include most services provided for a fee through the Internet, such as the supply of digitized products, music, films, online/offline games and distance teaching.

In addition to the above, qualifying TV and radio broadcasting services benefit from a super-reduced VAT rate of 3%.  Qualifying broadcasting of television or radio programs are defined by their ability to broadcast to an indeterminate number of potential viewers/listeners across a network.

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