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27.8 VAT on Imports and Exports (EU and Non-EU)

Understanding Cross-Border VAT​

Cross-border transactions (imports and exports) have special VAT rules that differ from domestic transactions. Understanding these rules is essential for businesses engaged in international trade.

EU Transactions​

Intra-EU Supplies (B2B)​

Supply to EU Business:

  • VAT Treatment: Zero-rated (0% VAT)
  • Requirement: Customer must provide valid EU VAT number
  • Documentation: Invoice must show customer's VAT number
  • Reporting: Report in EC Sales List (if applicable)

Example:

  • Luxembourg business sells €1,000 goods to French business
  • French business provides VAT number: FR12345678901
  • VAT Rate: 0% (zero-rated)
  • Invoice shows: "Intra-EU supply - VAT: 0%"

Intra-EU Acquisitions (B2B)​

Purchase from EU Business:

  • VAT Treatment: Reverse charge - you account for VAT
  • VAT Rate: Luxembourg VAT rate applies
  • Self-Assessment: You calculate and pay VAT in Luxembourg
  • Recovery: Can recover VAT as input VAT

Example:

  • Luxembourg business buys €1,000 goods from German business
  • Reverse Charge: You account for €170 VAT (17% in Luxembourg)
  • PCN Recording:
    • Debit 601 (Purchases): €1,000
    • Debit 44551 (Input VAT): €170
    • Credit 401 (Suppliers): €1,000
    • Credit 44571 (VAT payable): €170

EC Sales List​

When Required:

  • Supply goods to EU businesses exceeding threshold
  • Must file EC Sales List with VAT return

Information Required:

  • Customer VAT numbers
  • Transaction amounts
  • Transaction dates

Non-EU Transactions​

Exports to Non-EU Countries​

VAT Treatment:

  • Zero-rated (0% VAT)
  • Goods must leave EU
  • Export documentation required
  • Proof of export needed

Example:

  • Luxembourg business exports €5,000 goods to USA
  • VAT Rate: 0% (zero-rated export)
  • Documentation: Export declaration, shipping documents
  • Proof: Customs export certificate

Imports from Non-EU Countries​

VAT Treatment:

  • VAT payable on import
  • VAT calculated on customs value + duties
  • Paid at time of import
  • Can be recovered as input VAT

Example:

  • Import goods from China: €10,000
  • Customs duties: €500
  • VAT Base: €10,500
  • VAT (17%): €1,785
  • Total to Pay: €12,285 (€10,000 + €500 + €1,785)

Recovery:

  • VAT paid on import: €1,785
  • Can recover as input VAT in VAT return
  • PCN Recording:
    • Debit 601 (Purchases): €10,500
    • Debit 44551 (Input VAT): €1,785
    • Credit 512 (Bank): €12,285

Distance Selling (E-Commerce)​

EU Distance Selling​

When Applicable:

  • Sell goods to EU consumers
  • Exceed distance selling thresholds
  • Must register for VAT in customer's country

Thresholds:

  • €10,000: Annual threshold (can use home country VAT)
  • Over €10,000: Must register in customer's country

Example:

  • Luxembourg business sells online to French consumers
  • Annual sales: €15,000
  • Must register for VAT in France
  • Charge French VAT rates to French customers

Non-EU Distance Selling​

VAT Treatment:

  • Zero-rated for exports
  • Export documentation required
  • Proof of export needed

Digital Services​

B2B Digital Services (EU)​

VAT Treatment:

  • Reverse charge applies
  • Customer accounts for VAT in their country
  • No Luxembourg VAT

B2C Digital Services (EU)​

VAT Treatment:

  • VAT in customer's country
  • Must register for VAT in each EU country (or use MOSS)
  • Charge customer's country VAT rate

MOSS (Mini One Stop Shop):

  • Single registration in Luxembourg
  • File returns for all EU countries
  • Pay VAT to each country through MOSS

Documentation Requirements​

For Exports​

  • Export Declaration: Customs export declaration
  • Shipping Documents: Bill of lading, airway bill
  • Proof of Export: Customs export certificate
  • Invoice: Invoice showing 0% VAT

For Imports​

  • Import Declaration: Customs import declaration
  • Customs Documents: Entry documents
  • VAT Payment Proof: Proof of VAT payment
  • Invoice: Supplier invoice

Luxembourg Compliance Note​

Critical Requirements:

  • Valid VAT Numbers: Verify EU customer VAT numbers
  • Export Proof: Maintain proof of export for non-EU sales
  • Import VAT: Pay import VAT at customs
  • EC Sales List: File if required
  • Documentation: Keep all cross-border transaction documents

Common Issues:

  • Invalid VAT Numbers: Cannot zero-rate without valid VAT number
  • Missing Export Proof: Cannot zero-rate without proof
  • Incorrect Rates: Using wrong VAT rate for cross-border transactions
  • Late Reporting: Missing EC Sales List deadlines

Think It Through​

Sophie's bakery receives an order from a French business for €2,000 of specialty bread. The French business provides a VAT number. How should Sophie handle this transaction? What VAT rate should she charge? What documentation does she need?

Concepts in Practice​

Cross-Border Transaction

Artisan Boulangerie receives order from French restaurant:

Transaction Details:

  • Customer: French restaurant (VAT number: FR12345678901)
  • Order: €2,000 specialty bread
  • Delivery: To France

VAT Treatment:

  • Intra-EU B2B Supply: Zero-rated (0% VAT)
  • Invoice shows: "Intra-EU supply to FR12345678901 - VAT: 0%"
  • No Luxembourg VAT charged

PCN Recording:

  • Debit 411 (Customers): €2,000
  • Credit 701 (Sales): €2,000
  • No VAT recorded (zero-rated)

Reporting:

  • Include in EC Sales List (if threshold exceeded)
  • Report in VAT return as zero-rated supply