VAT Group Regime Available In Luxembourg
The Law of 6 August 2018 implements the Value Added Tax ("VAT") group regime in Luxembourg (the "VAT Group"). The Law introduces a new Article 60ter in the Luxembourg VAT law1 in accordance with Directive 2006/112/EU. This comes in response to the recent judgment of the European Union's Court of Justice which has restricted the scope of the VAT exemption applicable to services provided by independent groups of persons ("IGP").
The main advantage of this regime is that all members of a VAT Group will be considered as one single taxable person for VAT purposes so that supplies between group members will be disregarded for VAT purposes.
This feature makes the VAT group attractive for financial and insurance groups using the former IGP regime but also generally for groups performing VAT-exempt supplies without a (or with limited) VAT recovery right in Luxembourg (e.g. in the private equity, real estate, asset management sectors) or groups which aim at improving their cash-flow.
The new VAT Group is an optional regime that has to be maintained for at least 2 calendar years. It is available to legal entities and permanent establishments of foreign companies (i.e. Luxembourg branches of foreign based head-offices) that are resident in Luxembourg and have financial, economic and organisational links.
In particular:
The financial link needs to be established via a shared ownership structure2, to be certified by a statutory auditor (réviseur d'entreprises agréé) at the start of the VAT Group and subsequently on a yearly basis; The economic link is an activity-based criterion: the entities of the VAT Group need to either exercise the same core business or have complementary activities, or their activities should benefit other members of the VAT Group and The organisational link is satisfied when the VAT Group members operate under common controlling structures. If a group of entities decides to opt for the VAT Group regime, all group members need to be part of the VAT Group, unless a specific group member expressly decides to opt out, which is possible only if:
The group member deciding to opt out is not structurally interposed between the economic circuit of two other group members; and The opt-out does not result or potentially result in undue VAT savings of the VAT group or...
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