The Luxembourg government is to raise the rate of VAT 15% to 17% on 1 January 2015. The lower VAT rates charged on certain categories of expenditure will also rise from 12% and 6% to 14% and 8%, respectively. The third reduced VAT rate of 3% (foodstuffs; print and e-books; and public transport) will remain unchanged.
The VAT rate rise aims to compensate the government for the loss of revenue expected to result from changes in the place of supply rules for certain electronic services. From January 2015, businesses involved in the provision of services such as online books, music, film, games and music are required to change from charging the VAT rate based on the jurisdiction where they are located to charging VAT in the country where their customers live. A number of consumer electronic services companies have their European headquarters in Luxembourg owing to the low VAT rate but this is likely to change due to the new place of supply rules.
