Luxembourg Free Zone : Bill on VAT provisions submitted to Parliament

On 1 September 2014, a bill of law n°6713 was submitted to the Luxembourg Parliament (the "Bill"). The Bill aims to amend the Law of 12 February 1979 on the value added tax (the "VAT Law") and the Law of 17 December 2010 on excise duties applicable to certain categories of goods.

This flash focuses only on the VAT amendments proposed by the Bill, the aspect of excise duties on tobacco products being of less importance.

The Bill aims at promoting the new VAT-free zone regime at Luxembourg's Findel airport implemented by the Law of 28 July 2011 and developing the Luxembourg art market notably by extending the tax regime of the profit margin to organisers of sales by public auctions (see part 2) below) and by exempting certain goods and services from VAT (see part 3) below).

Furthermore, by providing, in particular, for the reduction of the applicable VAT rate on certain transactions (see part 1) below), the Bill is part of a set of measures which aims at increasing Luxembourg's competitiveness in the logistics sector by positioning Luxembourg as a storage and warehouse site for high value goods, such as art, and at the same time to align the Luxembourg VAT system with the regime applied by the majority of the Member States of the European Union.

The Bill proposes also to introduce certain purely technical clarifications for instance by introducing certain definitions.

It is proposed that the Bill will come into force on 1 January 2015.

1) Reduced rate on art, antiques and collectors' items

The import, intra-Community acquisition and supply of works of art, antiques and collectors' items are currently subject to the current standard VAT rate of 15%. Under the Bill, those transactions will benefit from the reduced VAT rate of 6%.

2) The extension of the profit margin regime

The Bill introduces the possibility for organisers of sales by public auction to benefit, upon option, from the profit margin VAT regime for the supply of second-hand goods, art works, collectors' items and antiques.

This regime is quite similar to the regime applicable to dealers who supply second hand goods, works of art, collectors' items and antiques. Taxation will only be due on the gain (profit margin) realised by the aforementioned dealers or organisers of sales by public auction.

3) VAT exemption on supplies to be placed in a free zone

The Bill provides that the supply of goods and services relating to certain transactions such as goods intended to be presented to customs and placed in temporary storage or goods intended to be placed in a free zone or in a free warehouse, covered by arrangements for temporary import with total exemption from import duty or by external transit arrangements, will now benefit from an exemption from VAT.

Similarly, the import of some goods which are intended, inter alia, to be placed in a free zone or in a free warehouse or to be placed under customs warehousing arrangements or inward processing arrangements, will benefit from an exemption from VAT as well.

It should be stressed, however, that placement under the particular VAT suspension regimes requires customs authorisation.