Step by step: Close-up on VAT and registration

As a future entrepreneur, understanding value-added tax (VAT) and the steps involved is your responsibility. Whether or not you feel comfortable managing finances, VAT is something you will have to take seriously at one point or another - so you might as well get it right from the start! Knowing what you’re talking about will help avoid unpleasant surprises. Plus, you will be able to devote yourself to your core business with more peace of mind.

Fortunately, there are qualified and committed experts who can help you understand the key mechanisms relating to VAT and walk you through the administrative steps.

VAT: What, who, how, when?

Value added tax (VAT) is one of the key components of a company's indirect taxation. Knowing how to handle it is necessary not only when starting your business, but all throughout the life of your company. The fact of the matter is that VAT is inevitable when the services or products you sell are consumed by customers.

What?

VAT is an indirect tax on consumer expenditures, which means that, unlike income tax, it is not collected directly by the State.

Who?

Anyone who sells a product or service collects VAT from their customers, then transfers it to the government. This means it is paid by the consumer and collected by companies, who take part in the process of producing economic value through marketing. The end customer alone bears the VAT.

In Luxembourg, it is collected by the Luxembourg Registration Duties, Estates and VAT Authority (AED) (1).

How?

A VAT deduction system has been set up for companies, to avoid having a same product taxed several times during successive purchases and resales. It allows companies that are subject to VAT to deduct the amount they pay on their own purchases (such as VAT paid to their suppliers) from amounts payable to the State.

As you can see, it’s essential for all companies to be able to calculate the amount of VAT they collect and can deduct. They must also declare and pay it on a regular basis, either monthly, quarterly and/or annually, which can lead to considerable administrative costs as well as time spent for smaller companies.

When?

The frequency of VAT returns depends on a company’s annual turnover. You should also be aware that in addition to filing VAT statements, taxable businesses established in Luxembourg that conduct intra-EU transactions must also file recapitulative statements for goods and services.

Furthermore, as of January 1, 2020, all returns must be filed by electronic transfer (submission of an online form or transfer of an XML file via the platform for the electronic gathering of financial data - eCDF).

For all these reasons, we recommend getting in touch with an accounting firm to ensure your returns are filled out correctly and avoid any errors that may affect the proper financial management of your company.

VAT registration

All new companies legally established in Luxembourg are required to register for VAT. To do so, an initial declaration must be filed for a natural person or legal person, depending on your chosen legal form.

Next, no later than 15 days following the launch of your activity, you will need to submit your full application either electronically via myguichet.lu or by post to the Luxembourg Registration Duties, Estates and VAT Authority (B.P. 31, L-2010 Luxembourg).

Your application must include the following documents:

Business permit
Copy of ID or passport of the manager, director or self-employed person
Copy of the lease contract where your company has its registered office, its place of operation
Copy of the memorandum of association (only for companies)
The form "VAT - Initial declaration natural persons" filled and signed (only for self-employed persons and individual companies)
The form "VAT - Initial declaration legal persons" filled and signed (only for companies)

When filling out the forms, be sure to specify the competent bureau. We have listed them for you, as a reminder:

Luxembourg I: Competent for all taxable persons established in the cantons of Luxembourg and Mersch in the form of a public limited liability company (SA)
Luxembourg II: Competent for all taxable persons (including simplified limited liability companies, SARL-S) established in the cantons of Luxembourg and Mersch, with the exception of public limited companies (SA) and private limited liability companies (SARL)
Luxembourg III: Competent for all taxable persons established in the Grand Duchy of Luxembourg whose economic activity consists of financial services (insurance, “soparfi”, funding, etc.)
Luxembourg IV: Competent for all taxable persons established in the Grand Duchy of Luxembourg in the industrial and box store sectors whose annual turnover exceeds 6.5 million euro
Luxembourg V: Competent for all taxable persons established in the cantons of Luxembourg and Mersch in the form of private limited liability companies (SARL), with the exception of simplified limited liability companies
Esch I: Competent for all taxable persons established in the canton of Esch-sur-Alzette
Esch II: Competent for all taxable persons established in the Grand Duchy of Luxembourg whose economic activity is directly related to the automotive sector
Diekirch I: Competent for all taxable persons established n the cantons of Clervaux, Diekirch, Redange-sur-Attert, Vianden and Wiltz
Diekirch II: Competent for all taxable persons established in the Grand Duchy of Luxembourg in the real-estate sector
Luxembourg X: For taxable persons who have neither a domicile, residence, registered office nor permanent establishment within the country.

You can find more information on the AED website.

We hope this article has been helpful. If it still seems complex, rest assured…when you follow the steps outlined above, the whole process doesn’t take long. All the necessary forms and information are easy to find on guichet.lu (2) and if you have any questions, do not hesitate to contact the House of Entrepreneurship.

For more information:

VAT and selling goods / VAT and the supply of services / VAT and online services

(1) https://guichet.public.lu/en/organismes/organismes_entreprises/administration-enregistrement-domaines.html (2) https://guichet.public.lu/en.html