05-04-09
Major changes to the VAT system as from January 1, 2010
The Luxembourg Government Council has recently given his agreement on a set of projects relating to the so-called “VAT package”
These major changes should enter into force as from January 1, 2010 and can be summarized as follows:
- new rules regarding the place of supply of services;
- enhanced cooperation between Member States;
- additional compliance obligations for intra-EU supplies of services;
- simplified procedure for claiming foreign VAT refunds.
New place of supply rules for services
The rules that apply for determining the place of supply of services (“place of taxation”) are revised. As from January 1, 2010, the general rules will be as follows:
- B2B services will be taxable in the country where the recipient is established, and no longer where the supplier is located. In other words, the reverse charge mechanism will be applied more extensively.
- B2C services remain in principle taxable where the supplier is established.
Exceptions are made for certain services, most notably for services connected with immovable property, transport services, cultural, sporting, scientific and educational services, work on movable property, restaurant and catering services as well as the hiring of means of transport.
In practice, the application of local VAT for cross-border B2B transactions should become the exception. This should reduce VAT cash-flow issues for VAT payers.
In order to smoothly assimilate the new rules and integrate changes to their business model, we recommend businesses to perform a VAT review of their service flows as a matter of priority in 2009.
Enhanced cooperation between Member States
In order to fight against EU VAT fraud and evasion, administrative cooperation and exchange of information between Member States will be enhanced, notably through the obligation to submit an EC Sales List for intra-EU supplies of services (see below).
Intra-EU reporting obligation for goods and services
In order to accelerate the exchange of information between Member States allowing a more effective control of the intra-community transactions, additional filing requirements will be imposed on businesses as from January 1, 2010.
EC Sales Lists for intra-EU supplies of services will be introduced. These should normally be filed on a monthly basis (electronic filing at the latest the 15th of each month). Quarterly filing should be allowed under certain conditions.
EC Sales Lists for intra-EU supplies of goods should also be filed on a monthly basis (electronic filing at the latest the 15th of each month). Quarterly filing should be allowed under certain conditions.
Businesses filing monthly EC Sales Lists for intra-EU supplies of goods will have to file their VAT returns electronically as well (periodical and annual returns).
New electronic VAT refund procedure
As from January 1, 2010, a new fully electronic procedure for claiming VAT incurred in another Member State will be introduced. It is planned that applications for VAT refunds will be submitted via the electronic gate of the Member State of establishment. This new procedure should allow a faster treatment of claims, increase legal certainty and reduce administrative burden for business operators. This measure should reduce the cost of prefinancing VAT incurred abroad by Luxembourg businesses.
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