Freelancer VAT summary for Luxembourg
Luxembourg is part of the European Union and, as such, follows the EU VAT directive, which aims to harmonise VAT rates within the EU. This directive basically specifies that VAT rates must be within a specific range. Additionally, you must pay VAT to the government where the product is consumed, regardless of where you’re supplying from. That means, if you have clients and consumers in Luxembourg, you pay VAT to the Luxembourg government.
Understanding the nitty-gritty of Luxembourg’s tax processes may seem tricky, which is why we made this simplified VAT guide to help you navigate the system. Let’s go!
A solopreneur based in Luxembourg is subject to four different VAT rates. The rate you charge depends on what kind of goods and services you sell:
Did you know the self-employment rate in Luxembourg is only 8.7%, one of the lowest rates in the EU? If you are one of the lucky few sole traders providing services in Luxembourg, you are required to register and pay VAT to the government, given your annual turnover exceeds €35,000. Even if you estimate that your turnover will exceed €35,000 in the following year, you should register for VAT.
The threshold for expat freelancers who are distance selling to taxable clients in Luxembourg is €100,000 per year, so you must register for VAT if your annual sales revenue exceeds this.
Thresholds are the primary but not sole determinant of when you should register for VAT. You may need to register for VAT based on other scenarios even when you do not meet the above mentioned thresholds.
If you are liable to register for VAT, you should first open a bank account or a postal checking account (CCP) at a Luxembourg or foreign bank. You will require a copy of your identity card and passport. If you have a registered practice, you also need constitutional documents in either French or German.
Luxembourg law requires freelancers to file an initial declaration with the Registration Duties, Estates and VAT Authority. You can file this initial declaration online using MyGuichet.lu or via post using the corresponding forms.
In order to file an initial declaration, you must provide the following information:
You should register for VAT within 15 days of commencing your taxable services. However, if your service crosses the tax exemption limit, you have to register for VAT before the end of the month when the tax exemption limit is exceeded.
Another option is to use Mini One-Stop Shop (MOSS) to register for VAT. MOSS is an EU-wide tax system that allows you to consolidate all of your EU VAT in one single tax return and is beneficial if you have operations in multiple EU countries. In addition, MOSS allows you to avoid registering in each Member State of consumption. Even if you’re based outside the EU, you can register with MOSS in Ireland or other EU countries. To learn more, click here.
Alternatively, you can hire an accountant (or agency) to handle your VAT registration, payment and returns with the tax office. Xolo provides services like Xolo Go and Xolo Leap, which help with precisely this and any other VAT concerns you may have. With Xolo Go, you can use a slice of our company as a legal framework to invoice your clients, regardless of whether they're across town or the ocean.
How frequently to report VAT?
If your yearly turnover is less than €112,000, you can report VAT returns once a year. On the other hand, if your turnover is between €112,000 and €620,000, you must submit VAT quarterly and annually. If your turnover exceeds €620,000, you are required to report VAT monthly and annually.
Once you register for VAT, you need to make sure to:
Furthermore, every VAT-registered individual is required to:
If you use Mini One-Stop Shop (MOSS) services, your records need to be preserved in a legible and complete format for at least ten years, either physically or electronically.
Feeling overwhelmed? At Xolo, we can help you to future-proof these vital documents by automatically generating, storing, and maintaining them electronically in our servers for as long as you need them.
How Xolo Can Help
The tax registration process can sometimes be confusing, but we hope this guide has helped clear your doubts about Luxembourg VAT regulations! If you’re still worried about the different schemes and numbers and paperwork, Xolo offers a range of solutions that handle all the hassle while you focus on your core competencies.
Simply put, we do the hefty work for you so that you can enjoy the freedom of freelancing. So connect with us immediately, and we’ll help you get your one-person business up and running in Luxembourg in no time!