On 8 June 2020, the Luxembourg government introduced a draft law on the value-added tax (“VAT”) regime for distance sales between businesses and consumers (“B2C”) within the EU primarily implementing the EU VAT Directive on distance sales (Directive EU/2017/2455, the “Directive”) into the Luxembourg VAT Law (Loi modifiée du 12 février 1979 concernant la taxe sur la valeur ajoutée).
This draft law is part of the implementation process of the European Commission’s VAT Action Plan aimed at tackling VAT fraud within the EU and to re-establish fair competition among the EU Member States. It also aims at better enshrining the newly introduced ‘destination principle’ providing that the delivery of goods and provision of services should be taxable in the Member State where the goods or services are received, conceding the old general principle of taxation at the place of departure.
The main changes include the introduction of a uniform annual turnover threshold for the B2C distance sales regime and its extension to third states as well as the introduction of the import scheme for third states and territories.
Modification of EU distance sales regime (B2C)
The Directive introduces an EU-wide uniform annual turnover threshold of EUR 10,000 for the purpose of applying the cross-border distance sales regime. Under the regime currently in place, Member States apply different turnover thresholds ranging between EUR 35,000 and EUR 100,000 in order to fall within the regime.
In order to re-establish fair competition with the new regime, any enterprise whose annual turnover threshold for the supply of goods to consumers in any Member State of the EU exceeds EUR 10,000 will be subject to the VAT rate in the state of destination of the final consumer. For the purpose of the law, consumer includes any non-taxable VAT person.
Furthermore, the new EU distance sales regime has been extended to imported goods from third States and territories and is no longer limited to the trade solely within the EU.
New import scheme for distance sales from third states
A new import scheme is introduced, allowing for a VAT exemption for distance sales of goods imported from third States or third territories to customers in the EU and limited to a value of EUR 150.
According to this regime, the seller will charge and collect that VAT at the point of sale to EU customers and declare and pay the VAT globally to the Member State of identification in the One-Stop-Shop system; the platform that allows enterprises to declare and pay VAT on distance sales in only one Member State. These declared goods will then benefit from a VAT exemption upon importation.
The introduction of this new import scheme is in line with the abolition of the current VAT exemption for goods in small consignments of a value of up to EUR 22.
The new VAT draft law, which still has to go through the legislative procedure and could thus be subject to amendments, is intended to become effective as from 1 January 2021.