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6.9 Luxembourg VAT on Merchandise (3%, 8%, 14%, 17% Rates)

VAT Rates on Merchandise​

Luxembourg has four VAT rates that apply to different types of merchandise:

  • 3%: Food products, books, pharmaceuticals, children's clothing
  • 8%: Some food products (takeaway), hotel accommodation
  • 14%: Alcoholic beverages (when not in restaurant), some goods
  • 17%: Most goods and services (standard rate)

VAT on Common Merchandise Types​

Food Products (3% VAT)​

Applies to:

  • Food products for human consumption
  • Water (except mineral/aerated)
  • Animal feed
  • Seeds and plants for food production

Example: Purchase €1,000 food products

Journal Entry:

321000 Inventory                   €1,000
431000 VAT Recoverable               30   (3%)
400000 Accounts Payable                        €1,030

Children's Clothing (3% VAT)​

Applies to:

  • Clothing and shoes for children
  • Age limits apply (typically up to 14 years)

Example: Purchase €500 children's clothing

Journal Entry:

321000 Inventory                   €500
431000 VAT Recoverable               15   (3%)
400000 Accounts Payable                          €515

Alcoholic Beverages (14% VAT)​

Applies to:

  • Wine, beer, spirits
  • When sold as merchandise (not in restaurant)

Example: Purchase €1,000 wine for retail sale

Journal Entry:

321000 Inventory                   €1,000
431000 VAT Recoverable              140   (14%)
400000 Accounts Payable                        €1,140

Standard Merchandise (17% VAT)​

Applies to:

  • Most goods not specifically listed
  • Electronics, furniture, general clothing, etc.

Example: Purchase €2,000 general merchandise

Journal Entry:

321000 Inventory                   €2,000
431000 VAT Recoverable              340   (17%)
400000 Accounts Payable                        €2,340

VAT on Sales​

Same rates apply to sales:

Example: Mixed Sales

Retail store sells:

  • Children's T-shirt: €20 (3% VAT)
  • Adult T-shirt: €30 (17% VAT)
  • Book: €15 (3% VAT)

Journal Entries:

Sale 1: Children's T-shirt

510000 Cash                        €20.60
700000 Sales Revenue                           €20.00
430000 VAT Payable (3%)                           €0.60

Sale 2: Adult T-shirt

510000 Cash                        €35.10
700000 Sales Revenue                           €30.00
430000 VAT Payable (17%)                          €5.10

Sale 3: Book

510000 Cash                        €15.45
700000 Sales Revenue                           €15.00
430000 VAT Payable (3%)                           €0.45

VAT Tracking for Returns​

Important: Must track VAT by rate for proper VAT return preparation.

Example: Customer returns children's T-shirt (3% VAT)

Journal Entry:

700000 Sales Returns               €20.00
430000 VAT Payable (3%)                           €0.60
510000 Cash (or 410000 Receivable)                €20.60
To record return of merchandise

Luxembourg VAT Return Preparation​

For VAT Return (eCDF):

  • Must report sales by VAT rate
  • Must report purchases by VAT rate
  • Must calculate net VAT (Payable - Recoverable)
  • Must file by deadline (monthly/quarterly/annual)

Example VAT Summary:

VAT Payable:
  3% VAT Sales: €500 × 3% = €15.00
  17% VAT Sales: €2,000 × 17% = €340.00
  Total VAT Payable: €355.00

VAT Recoverable:
  3% VAT Purchases: €300 × 3% = €9.00
  17% VAT Purchases: €1,500 × 17% = €255.00
  Total VAT Recoverable: €264.00

Net VAT to Pay: €355.00 - €264.00 = €91.00

Luxembourg Compliance Note​

For VAT on merchandise in Luxembourg:

  • Must use correct VAT rate for each item
  • Must track VAT by rate for VAT return
  • Must record VAT separately (not in inventory cost)
  • Must file VAT returns on time (eCDF)
  • Must maintain proper documentation
  • Different rates require careful accounting

Common VAT Errors to Avoid​

  1. Wrong Rate Application: Using 17% instead of 3% for food
  2. Missing VAT Tracking: Not tracking VAT by rate
  3. VAT in Inventory Cost: Including VAT in inventory (should be separate)
  4. Incorrect Returns: Not adjusting VAT on returns
  5. Missing Documentation: Not supporting VAT calculations

Think It Through​

A Luxembourg retail store sells both children's clothing (3% VAT) and adult clothing (17% VAT). How should the business track these sales for VAT return preparation? What accounts and procedures are needed?