In the recent Luxembourg budget, it was announced that the estimated annual VAT shortfall following the changes will total €600m to €1.1bn. This amounts to between 4.9% and 9.1% of the current annual VAT take. Due to the significance of this amount, it appears inevitable that VAT rate increases are on the horizon in the Luxembourg 2015 budget.
Historically, many of the leading names in the areas of TBES services have established themselves within Luxembourg, with one of the significant factors in this decision being the lowest standard VAT rate within the EU. As the large majority of sales are made to non-business customers, for whom any VAT is irrecoverable, this has made the products more attractive than those made by businesses established in EU Member States with higher VAT rates.
However, following the changes in January 2015, supplies made by these businesses will be taxable at the VAT rate applicable where the customer belongs, meaning the low Luxembourg VAT rate will no longer provide a significant commercial advantage.
