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Chapter 27 – Solutions

Multiple Choice Solutions​

  1. b) Luxembourg's standard VAT rate is 17%.

  2. b) Wine in restaurants is subject to 14% VAT.

  3. b) VAT registration is mandatory when annual turnover exceeds €35,000.

  4. b) Account 44581 represents VAT on sales (output VAT).

  5. c) Account 44551 is used for input VAT recoverable.

  6. b) eCDF filing is mandatory for all VAT returns.

  7. b) Intra-EU B2B supplies are zero-rated when customer provides valid EU VAT number.

  8. b) If input VAT exceeds output VAT, you are entitled to a refund.

  9. b) SME VAT Scheme is available for businesses with turnover up to €50,000.

  10. d) Basic foodstuffs are subject to 3% VAT (super-reduced rate).

Question Solutions​

Question 1​

Luxembourg's four-tier VAT rate structure:

  • 17% (Standard): Most goods and services, restaurant food, professional services
  • 14% (Intermediate): Wine, alcoholic beverages, certain energy products
  • 8% (Reduced): Food products, books, pharmaceuticals, hotel accommodation
  • 3% (Super-Reduced): Basic foodstuffs, water, medical equipment, public transport

Question 2​

VAT registration is mandatory when annual taxable turnover exceeds €35,000. Benefits of voluntary registration include ability to recover input VAT on purchases, professional image, and B2B advantages.

Question 3​

SME VAT Scheme provides simplified accounting, annual filing, and reduced compliance burden for businesses with turnover up to €50,000. Limitations include turnover limit, reduced flexibility, and potential limitations on input VAT recovery.

Question 4​

Cash Sale with VAT:

  • Debit Account 530 (Cash): €117.00
  • Credit Account 701 (Sales): €100.00
  • Credit Account 44581 (VAT on sales): €17.00

Question 5​

Output VAT is VAT collected on sales (recorded in Account 44581). Input VAT is VAT paid on purchases (recorded in Account 44551). Net VAT = Output VAT - Input VAT (recorded in Account 44571).

Question 6​

eCDF filing process: Log in, select VAT return type, enter output VAT and input VAT data, review and validate, submit electronically, receive confirmation, pay VAT if due.

Question 7​

Intra-EU B2B transactions are zero-rated when customer provides valid EU VAT number. Reverse charge applies to purchases from EU businesses—you account for VAT in Luxembourg and can recover as input VAT.

Question 8​

Restaurant VAT rules: Food (17%), Wine/alcoholic beverages (14%), Non-alcoholic beverages (8%). Each rate must be shown separately on invoices.

Question 9​

VAT transactions recorded in PCN Class 4: Account 44551 (Input VAT), Account 44581 (Output VAT), Account 44571 (VAT Payable). Used to track VAT collected, paid, and net amount due.

Question 10​

Common VAT errors: Wrong rates, missing VAT, incorrect input VAT recovery, late filing, calculation errors. Avoid through software, training, professional support, and internal controls.

Note: Complete solutions for Problems Set A, Set B, and Comprehensive Problem are available in the instructor solutions manual.

End of Chapter 27 Solutions