Coronavirus raises VAT questions in Luxembourg

1. What are the VAT measures adopted by Luxembourg to address the coronavirus crisis?

To date, the Luxembourg Government has announced three VAT measures.

First, businesses holding a VAT receivable towards the State of less than EUR 10,000 will be reimbursed without delay. This should entitle these businesses to quickly avail of a liquidity.

Second, the VAT Authorities have announced that, until further notice, late-filing of a business’ VAT returns will not be sanctioned. Since VAT becomes payable to the State as soon as the VAT return is filed, a tolerance in the timing of the filing allows for a delayed payment. Note that this tolerance was removed as of 12 May 2020 (see update below).

Third, the VAT Authorities set up a specific process to request a deferment of the payment of the VAT that is already due to the State.

Update 12^th May 2020: The Luxembourg VAT Authorities have issued a statement informing that the administrative tolerance whereby late filing would not be sanctioned is no longer applicable. One should therefore now respect the usual deadlines for the filing of VAT returns. Note that the enforced recovery of VAT debt remains suspended.

2. My business has VAT to remit to the State. When is that VAT due to be paid?

When a business is in a VAT payable position towards the State, VAT is payable when the relevant VAT return is filed. This is why the legal deadline of this filing is of the utmost importance.

In case a business suffers financial difficulties directly linked to the COVID-19 crisis, and a VAT return has already been filed leading to an amount of VAT payable to the State, it remains entitled to submit an electronic request on the web site of the VAT authorities asking for the deferral of VAT payment.

For more information, please see the link to the web site of the VAT Authorities: here. 

3. My business files periodical VAT returns. When should I file my VAT returns?

Luxembourg VAT returns should be filed electronically not later than the 15^th day of the month following the concerned period. However, the Luxembourg VAT Authorities issued a statement on 18 March 2020 informing that, due to the coronavirus crisis, no penalties will be imposed for the late filing of VAT returns.

Until further notice from the VAT Authorities, one should therefore not be sanctioned for the late filing of its VAT returns. This measure, adopted following the coronavirus crisis, is there to alleviate the impact of VAT filings on businesses’ cash flow - although the best practice is of course to file as soon as a business practically can and would not jeopardise your business.

Update 12^th May 2020: The Luxembourg VAT Authorities have issued a statement informing that the administrative tolerance whereby late filing would not be sanctioned is no longer applicable. One should therefore now respect the usual deadlines for the filing of VAT returns. Note that the enforced recovery of VAT debt remains suspended. 

4. My business files a simplified or single annual return. When should I file this VAT return?

A simplified or single annual return is due on the last day of February of the following year. However, the Luxembourg VAT Authorities issued a statement on 18 March 2020 informing that, due to the coronavirus crisis, no penalties will be imposed for the late filing of VAT returns.

If your business’ simplified or single annual return has not yet been filed, and you are experiencing a cash-flow challenge, a solution would be to postpone the filing of your VAT return by a few weeks or months.

Update 12^th May 2020: The Luxembourg VAT Authorities have issued a statement informing that the administrative tolerance whereby late filing would not be sanctioned is no longer applicable. One should therefore now respect the usual deadlines for the filing of VAT returns. Note that the enforced recovery of VAT debt remains suspended.

5. What happens if I don’t pay VAT?

Paying VAT at the same time as filing your VAT return is a legal obligation, and infringements can technically be sanctioned. A potential solution is to delay the filing of your VAT return, thereby making use of the tolerance granted by the VAT Authorities in order to address the coronavirus crisis.

If you have already filed your VAT return, or have to file it very soon, and do not have the means to remit the relevant amount to the State, you may file a request to the VAT Authorities asking for a delay in the  payment of VAT due. For more information, please see the link to the web site of the VAT Authorities: here.

6. How can I receive outstanding VAT credits from the Luxembourg VAT Authorities?

As an exceptional measure, as from 17 March 2020 any VAT credits left on the taxpayer’s accounts of less than EUR 10,000 will be reimbursed to Luxembourg businesses.

The reimbursement procedure of any other VAT credits remains unchanged.

7. We had to cancel events that were prepaid by our clients, and the relevant VAT has already been remitted to the State. Can I recover this VAT?

As a general rule, yes. In case your event is cancelled, there is ultimately no supply and VAT is therefore not due. This is certainly the case when the full amount is reimbursed to your clients.

One should however take into account specific contractual provisions (e.g. no or partial reimbursement to clients, replacement by a voucher etc.).

Note also that, in case the event is postponed, it will ultimately take place and VAT is therefore due. And since VAT is also due on advance payments, the amount of VAT collected by your business and remitted to the State should not be recoverable.

8. My client cancelled a transaction that had been prepaid. The relevant VAT amount has already been remitted to the State, and my business will not reimburse the client, as the contract provides that prepayments are not reimbursed and are kept as an indemnification. Can I recover the VAT?

VAT is in principle not due on an indemnification. Subject to an analysis of the contractual agreements, we believe that the VAT remitted to the State may be recoverable. 

9. We had to cancel events that were prepaid by our clients. The relevant VAT amounts have already been paid to the State. We are thinking about offering our clients vouchers for the same value as the price they already paid. What does that mean from a VAT viewpoint? 

If your business awards vouchers to your clients in compensation of the cancelled events, it depends on the nature of the voucher whether already remitted VAT can be reclaimed.

If the VAT treatment of the supply of goods or services covered by the voucher is already known at the time of its issuance (so called “single purpose voucher”), then it is unlikely that VAT would be refundable, to the extent of course that the amount of VAT paid to the State is the same as the one due under the voucher.

If the VAT treatment of the supply of goods or services covered the voucher cannot be known at the time of its issuance (so called “multiple purpose voucher”), then there are arguments that VAT should be refundable, precisely because one cannot already determine the amount of VAT that will have to be remitted to the State.

10. My tenant cannot pay the rent. The rent is subject to VAT. Do I still have to pay VAT to the State?

As a general rule, VAT applies when a supply is performed for consideration. When rent is not paid, there is no consideration, and VAT should therefore not apply. You should not be required to pay the VAT to the State, unless an invoice is issued with VAT.

11. My clients cannot pay the services and/or goods I have supplied. But the transactions were already declared in my VAT returns and VAT has been remitted to the State. Can I recover this VAT? 

In case your clients do not pay (fully or partially) the debts for services/goods you have already supplied to them, the Luxembourg VAT law provides for a regularization of the VAT taxable base.

In practice, this applies for uncollectable debts – for instance debts that cannot be paid due to a recognized force majeure event. It is also advised to keep track of the unpaid invoices and of the all the correspondence sent to your clients in that regard.

12. I want to give my clients a discount. What does that mean from a VAT standpoint?

If you give your clients a discount after the remittance of the associated VAT to the State, you can claim the reimbursement of a part of this VAT. As the taxable base changes due to the discount, so does the amount of VAT that the State can collect.