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27.9 Sector-Specific VAT Rules (Restaurants, Retail, Services)

Why Sector-Specific Rules Matter​

Different business sectors have unique VAT rules based on the nature of their operations. Understanding sector-specific rules is essential for correct VAT application and compliance.

Restaurant and Hospitality VAT Rules​

Food vs. Beverages​

Food (17% VAT):

  • Prepared meals
  • Takeaway food
  • Catering services
  • Food for consumption on premises

Alcoholic Beverages (14% VAT):

  • Wine
  • Beer
  • Spirits
  • Alcoholic cocktails

Non-Alcoholic Beverages (8% VAT):

  • Water
  • Soft drinks
  • Juice
  • Coffee and tea (when sold separately)

Special Restaurant Situations​

Takeaway vs. Dine-In:

  • Same VAT Rate: Both 17% for food
  • No Distinction: Takeaway and dine-in treated the same

Service Charges:

  • Mandatory Service Charge: 17% VAT applies
  • Voluntary Tips: No VAT (given directly to staff)

Catering Services:

  • Off-Premises Catering: 17% VAT
  • Includes: Food, service, equipment rental

Restaurant VAT Example​

Table Order:

  • Food: €50.00 (17% VAT = €8.50)
  • Wine: €30.00 (14% VAT = €4.20)
  • Water: €5.00 (8% VAT = €0.40)
  • Service charge: €10.00 (17% VAT = €1.70)
  • Total VAT: €14.80

Retail VAT Rules​

General Retail Sales​

Standard Rate (17%):

  • Most retail goods
  • Clothing
  • Electronics
  • General merchandise

Reduced Rate (8%):

  • Books
  • Pharmaceuticals
  • Some food products (for home consumption)

Super-Reduced Rate (3%):

  • Basic foodstuffs
  • Water
  • Medical equipment

Retail Special Situations​

Customer Returns:

  • Credit Note: Issue credit note reducing VAT
  • Refund: Refund includes VAT
  • Adjustment: Adjust VAT in return period

Discounts:

  • Before Sale: Discount reduces VAT base
  • After Sale: Credit note reduces VAT

Loyalty Programs:

  • Points: No VAT on points earned
  • Redemption: VAT applies to discounted price

Professional Services VAT Rules​

Standard Services (17% VAT)​

Examples:

  • Legal services
  • Accounting services
  • Consulting services
  • Management services
  • IT services

Reduced Rate Services (8% VAT)​

Examples:

  • Some cultural services
  • Certain educational services
  • Some healthcare services (with exceptions)

VAT-Exempt Services​

Examples:

  • Medical services (by qualified professionals)
  • Educational services (by recognized institutions)
  • Financial services
  • Insurance services

Important: VAT-exempt businesses cannot recover input VAT.

Service-Specific Rules​

Time-Based Billing:

  • VAT applies to total invoice amount
  • Rate depends on service type

Project-Based Billing:

  • VAT on milestones or completion
  • Rate depends on service type

Retainers:

  • VAT on retainer payments
  • Rate depends on service type

E-Commerce VAT Rules​

Digital Goods and Services​

B2B (EU):

  • Reverse charge applies
  • Customer accounts for VAT

B2C (EU):

  • VAT in customer's country
  • Must register or use MOSS

B2C (Non-EU):

  • Zero-rated (export)

Physical Goods (Online Sales)​

Domestic Sales:

  • Standard VAT rates apply
  • Same as retail rules

EU Sales:

  • Distance selling rules apply
  • May need registration in customer countries

Non-EU Sales:

  • Zero-rated (export)

Construction and Real Estate VAT Rules​

Construction Services​

Standard Rate (17%):

  • Most construction services
  • Renovation work
  • Installation services

Reduced Rate (8%):

  • Some social housing construction
  • Certain renovation work

Real Estate Transactions​

Sales of Buildings:

  • VAT-Exempt: Sales of existing buildings
  • VAT Applies: Sales of new buildings (first sale)

Rental Income:

  • VAT-Exempt: Residential rentals
  • VAT Applies: Commercial rentals (17%)

Healthcare and Education VAT Rules​

Healthcare Services​

VAT-Exempt:

  • Medical services by qualified professionals
  • Hospital services
  • Some dental services

VAT Applies:

  • Cosmetic procedures
  • Some wellness services
  • Medical equipment sales (3% or 17%)

Educational Services​

VAT-Exempt:

  • Education by recognized institutions
  • Some training services

VAT Applies:

  • Private tutoring
  • Some professional training
  • Educational materials (books at 8%)

Luxembourg Compliance Note​

Sector-Specific Considerations:

  • Verify Rates: Always verify correct VAT rate for your sector
  • Mixed Supplies: When selling items with different rates, show separately
  • Documentation: Keep sector-specific documentation
  • Regular Updates: VAT rules may change—stay updated
  • Professional Advice: Consult accountant for complex situations

Common Sector Errors:

  • Wrong Rate: Using incorrect VAT rate for sector
  • Mixed Rates: Not separating different rates on invoices
  • Exempt Confusion: Confusing exempt with zero-rated
  • Sector Changes: Not updating when business activities change

Think It Through​

Marie's restaurant offers a "meal deal" that includes food (17% VAT), wine (14% VAT), and dessert (17% VAT) for a single price. How should she handle the VAT? Should she use one rate or multiple rates?

Concepts in Practice​

Restaurant Multi-Rate Invoice

Le Petit Bistro "Dinner for Two" package:

Package Components:

  • Starter and main course: €40 (17% VAT = €6.80)
  • Wine: €25 (14% VAT = €3.50)
  • Dessert: €10 (17% VAT = €1.70)
  • Package Price: €75
  • Total VAT: €12.00

Invoice Presentation:

  • Food (17%): €50.00 + €8.50 VAT
  • Wine (14%): €25.00 + €3.50 VAT
  • Total: €75.00 + €12.00 VAT = €87.00

PCN Recording:

  • Debit 530 (Cash): €87.00
  • Credit 701 (Food sales): €50.00
  • Credit 701 (Wine sales): €25.00
  • Credit 44581 (VAT 17%): €8.50
  • Credit 44581 (VAT 14%): €3.50