The Luxembourg VAT Group Is Coming

On 13 April 2018, the Ministry of Finance communicated the draft bill n°7278 to the Parliament. This draft bill proposes to implement a VAT group regime into the Luxembourg VAT landscape.

The new regime, subject to the consultation of the EU VAT Committee and legislative process, is a positive signal sent to financial and insurance sector players which have been impacted by the limitation of the scope of the VAT exemption for IGPs.

Interest of the VAT group

The implementation of a VAT group means that various legally independent persons closely bound by financial, economic and organizational links, are considered as one single VAT taxpayer. Since the members are considered as a single VAT taxpayer, the transactions among them would no longer be subject to VAT.

In practice, supplies of goods and services between members of the VAT group would fall outside the scope of the VAT.

This regime will be mostly beneficial to companies with a limited or nil VAT deduction right, mainly banks, insurance and fund management companies for the financial sectors as well as holding and financing companies. The setup of VAT groups would thus lower the non-deductible VAT costs incurred by these companies on services rendered between members.

The VAT group will be provided with one VAT number and the filing of VAT returns will be consolidated at the level of the group.

Conditions to set up a VAT group

Luxembourg entities are allowed to create a VAT group provided that the three following links are demonstrated simultaneously by the members:

Financial link. This is either a direct or indirect link, which shows a control by one company over the members of the group, as defined by reference to the corporate law (consolidation for accounting). This link is evaluated notably with reference to the shareholders' or members' voting rights and will have to be certified by an auditor or chartered accountant. Economic link. The activities of the members should be (1) of the same nature or (2) complementary or (3) for the benefit of the activity of the others members of the group...

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