I. E-Commerce Luxembourg: concept

E-Commerce is the electronic trading of goods and services on the internet and is divided into indirect and direct E-Commerce. In the case of indirect E-Commerce, the contract is concluded on the internet whilst the performance of the contract takes place outwith the internet. With regard to value-added tax (VAT), this transaction is treated in the same way as a conventional commercial transaction. In contrast, in the case of direct E-Commerce transactions, the entire legal transaction and the subsequent exchange of goods and services take place on the internet.  In light of this special feature, the remainder of this text will exclusively focus on direct E-Commerce:

E-Commerce includes the following services:

  • The provision of websites, web hosting and the maintenance of programmes and equipment;
  • The provision of software and the updating thereof;
  • The provision of texts and information for, but not limited to, e-books and other electronic publications as well as online advertisements;
  • The provision of databases such as those required for search engines;
  • The provision of music, films and games used for gambling and lotteries as well as for programmes and events from the worlds of politics; culture; sport; science and entertainment;
  • The provision of long-distance learning;
  • Online auctions, insofar as this is not already dealt with by web hosting services, through automated databases where the customer is required to input data and where no or minimal human intervention is necessary;
  • Internet service packages which include more than mere access to the internet, instead including -but not limited to- news; the weather forecast; travel information; gaming forums; web hosting and access to chatlines.

In Luxembourg, E-Commerce Companies are specifically designed for such direct E-Commerce services. E-Commerce Companies may be formed  as corporations or as partnerships in Luxembourg. The particular formation requirements will be determined by the legal form the said company takes.

II. Tax aspects of direct E-Commerce

In accordance with the European Directive on E-Commerce, direct E-Commerce services are subject to a special EU value-added tax (VAT) regime.  The said Directive will remain in force until January 1st, 2015:

1. The Taxation of direct E-Commerce Services

For the purposes of value-added tax (VAT), every supplier of E-Commerce direct services will be treated as a business person and is accordingly required to pay value-added tax (VAT) on the services he provides. The place of performance is decisive therefore and is to be measured against the following criteria

  • The residence of the performing business person
  • The status and residence of the purchaser

1.1 Business persons outwith the EU

(1) Services to customers in the same EU member state

Where an EU business person provides E-Commerce services to a private person in the same EU member state or to a commercial customer in the same EU member state, value-added tax (VAT) requires to be paid by the EU business person providing the services.

(2) Services to customers in another EU member state

Where an EU business person provides E-Commerce Services to a commercial customer in another EU member state, value-added tax (VAT) requires to be paid in the member state in which the commercial customer is resident. In cases such as this, the so-called “reverse charge” procedure, a special regulation which uniformly applies to all EU member states, will operate. Thereafter, the commercial customer -as the recipient of the services- is to calculate the value-added tax (VAT) liability in accordance with the tax rates in force in his country and to pay the tax to the competent tax office. In so doing, the said commercial customer has the right to deduct input tax for the same amount.

Where an EU business person provides direct E-Commerce services to a private person in another EU member state, tax requires to be paid in the member state in which the performing business person is resident. Notwithstanding this, from January 1st, 2015, where an EU business person has provided direct E-Commerce services to private persons, value-added tax (VAT) will required to be paid in the customer's member state.

(3) Services to customers outwith the EU

Where direct E-Commerce services are provided by EU business persons to customers outwith the EU, no EU value-added tax (VAT) is paid. In such cases, tax is levied in the jurisdiction of the customer.

1.2. Business persons resident outwith the EU

(1) Commercial EU customers

Where a business person resident outwith the EU provides direct E-Commerce services to a commercial EU customer, value-added tax (VAT) will be paid on the said services in the jurisdiction of the customer through the reverse charge procedure. The non-EU business person is not required to be registered in the EU for value-added tax (VAT) purposes due to the commercial customer himself paying the value-added tax (VAT) within the reverse charge procedure.

(2) EU private person

Likewise, where a business person resident outwith the EU provides direct E-Commerce services to a private person in the EU, value-added tax (VAT) will be paid in the EU. However, in this case the said business person must be registered in the EU, in a member state of his choice, for value-added tax (VAT) purposes and must bill such customers at the standard rate of value-added tax (VAT) in force in the EU member state in which the customers are resident.  The said business person is thereafter required to pay value-added tax (VAT) to the tax authority in the member state in which he is registered every three months and to simultaneously provide an electronic statement detailing transactions during that period.  In accordance with the said statement, the taxes will thereafter be forwarded to the relevant member state of the customers.

2. Taxation of direct E-Commerce services in Luxembourg

Luxembourg is an attractive location for direct E-Commerce due to its favorable and, with respect to certain services, reduced rates of value-added tax (VAT). The provision of goods and services is subject to value-added tax (VAT) at a rate not exceeding 15% in Luxembourg. In Luxembourg, a reduced rate of value-added tax (VAT) of 3% tax applies to the supply of e-books to end-customers. The said reduced rate is in force until January 1st, 2015.

LEGAL and TAX ADVICE and SUPPORT

Our lawyers and tax experts stand ready to advise you personally and free of charge during the decision-making process and throughout the formation/incorporation/setting up process of an E-Commerce Company in Luxembourg.

Please contact us by telephone through the following telephone number

00352 250 345 27

(Monday - Friday between 9am and 4pm)

or by e-mail at the following e-mail address
info(at)startup-luxembourg.com

or simply use our online contact form.

ELECTRONIC SUBMISSION OF VALUE-ADDED TAX (VAT) RETURNS

From January 1st, 2013, all value-added tax (VAT) returns must be submitted electronically  through the eTVA system of Luxembourg's Land Registration and Estates Department (Administration de l ́Enregistrement et des Domaines). This applies to all liable to value-added tax (VAT) in Luxembourg and subsequently subject to the monthly or quarterly tax regulations with regard to the value-added tax (VAT) return.