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27.2 VAT Registration Thresholds and Obligations

When Must You Register for VAT?​

VAT registration is mandatory for businesses in Luxembourg when:

  1. Annual Turnover Threshold: Your annual taxable turnover exceeds €35,000
  2. Intention to Exceed: You expect to exceed the threshold in the current year
  3. Voluntary Registration: You choose to register even if below threshold (to recover input VAT)
  4. Specific Activities: You engage in certain activities requiring registration regardless of turnover

Registration Thresholds​

Standard Threshold: €35,000​

Applies to: Most businesses selling goods or services in Luxembourg.

Calculation:

  • Based on taxable turnover (excluding VAT)
  • Includes all taxable sales, not just Luxembourg sales
  • Calculated on a rolling 12-month basis

Example:

  • Business has €30,000 turnover in first 6 months
  • Projected annual turnover: €60,000
  • Must register before exceeding €35,000

SME VAT Scheme Threshold: €50,000​

Applies to: Small businesses eligible for simplified VAT scheme (see Section 27.3).

Benefits:

  • Simplified accounting
  • Reduced filing frequency
  • Lower compliance burden

Registration Process​

Step 1: Determine Eligibility​

  • Calculate your taxable turnover
  • Check if you exceed thresholds
  • Consider voluntary registration benefits

Step 2: Gather Required Documents​

  • Business registration documents (RCS)
  • Identification documents
  • Bank account details
  • Business activity description

Step 3: Submit Registration Application​

  • Complete VAT registration form
  • Submit to Administration de l'Enregistrement, des Domaines et de la TVA (AED)
  • Receive VAT number (usually within 2-4 weeks)

Step 4: Receive VAT Number​

  • Format: LU + 8 digits (e.g., LU12345678)
  • Required for all invoices
  • Must be displayed on business documents

VAT Registration Obligations​

Once registered, businesses must:

1. Charge VAT on Sales​

  • Apply correct VAT rate to all taxable sales
  • Issue VAT invoices with required information
  • Display VAT-inclusive prices to consumers

2. Keep VAT Records​

  • Maintain detailed records of all transactions
  • Keep invoices and receipts
  • Record VAT collected and paid
  • Retain records for 10 years

3. File VAT Returns​

  • Submit periodic VAT returns (monthly, quarterly, or annual)
  • Calculate net VAT payable or refundable
  • File through eCDF system
  • Meet filing deadlines

4. Pay VAT Due​

  • Pay net VAT within payment deadlines
  • Interest and penalties apply for late payment
  • Set up payment arrangements if needed

5. Display VAT Number​

  • Include VAT number on all invoices
  • Display on website and business documents
  • Required for B2B transactions

VAT Return Filing Frequency​

Filing frequency depends on annual turnover:

Annual TurnoverFiling Frequency
Over €112,000Monthly
€35,000 - €112,000Quarterly
Below €35,000Annual (if eligible)

Voluntary Registration​

Businesses below the threshold can voluntarily register for VAT to:

  • Recover Input VAT: Claim back VAT paid on purchases
  • Professional Image: Appear more established to customers
  • B2B Advantage: Some B2B customers prefer VAT-registered suppliers

Considerations:

  • Must charge VAT on all sales
  • Must file VAT returns regularly
  • Administrative burden increases
  • May affect pricing competitiveness

Deregistration​

Businesses can deregister for VAT if:

  • Turnover falls below threshold for 12 consecutive months
  • Business ceases trading
  • Business structure changes

Process:

  • Submit deregistration application
  • File final VAT return
  • Pay any outstanding VAT
  • Return VAT registration certificate

Luxembourg Compliance Note​

Penalties for Non-Registration:

  • Late registration penalty: €250 - €2,500
  • Interest on unpaid VAT
  • Potential criminal liability
  • Backdating of registration requirement

Important Deadlines:

  • Register before exceeding threshold
  • Notify authorities within 15 days of exceeding threshold
  • Late registration can result in penalties

Think It Through​

Sophie's bakery has €28,000 turnover in her first year. She expects to grow to €45,000 in year two. Should she register for VAT now, or wait until she exceeds the threshold? What are the pros and cons of each approach?

Concepts in Practice​

Early Registration Decision

Artisan Boulangerie had €30,000 turnover in year one. Sophie considered:

Option 1: Wait to Register

  • Pros: No VAT compliance until threshold reached
  • Cons: Cannot recover input VAT on equipment purchases
  • Cons: May need to register mid-year, causing disruption

Option 2: Register Early

  • Pros: Can recover €2,000+ input VAT on equipment
  • Pros: Smooth transition, no mid-year disruption
  • Cons: Must charge VAT on all sales (may affect pricing)

Decision: Sophie registered early to recover input VAT and avoid mid-year disruption.