Deductible input VAT in Luxembourg: what you can recover, with a worked example

The principle: VAT should not cost your business

VAT is a tax on final consumption. For a VAT-registered business it is meant to be neutral: the VAT you pay on business purchases comes back to you.

Guichet.lu puts it simply: input VAT is VAT paid to suppliers, and the deduction regime exists so that VAT does not increase the cost of goods and services and stays fully neutral for taxable persons. Each business pays the Registration Duties, Estates and VAT Authority (AED) the difference between the VAT collected on sales and the deductible VAT paid on business purchases.

If VAT is new to you, start with our guide to VAT in Luxembourg: rates, registration and returns. This article focuses on the other side of the calculation, what you can recover.

Worked example: one laptop, one quarter

A self-employed consultant buys a laptop for her business: EUR 1,500.00 excluding VAT. At the standard rate of 17%, the supplier’s invoice shows EUR 255.00 of VAT, EUR 1,755.00 in total. In the same quarter she invoices her clients EUR 5,000.00 excluding VAT, which means EUR 850.00 of VAT collected.

The EUR 255.00 is not lost: it directly reduces what she pays. The figures are illustrative; to check a calculation, use our Luxembourg VAT calculator.

The three conditions to check

1. 1
   The purchase is for your business. According to Guichet.lu, the deduction only covers VAT on goods and services necessary for the operation of the business.
2. 2
   You keep the invoice. To deduct input VAT, you must be able to provide all supporting documents (invoices, transport documents, payments, etc.) at the AED’s request. Invoices received must be kept for 10 years from their date of issue.
3. 3
   It is Luxembourg VAT. Only Luxembourg VAT is deductible in Luxembourg: VAT paid to another taxable person in Luxembourg, VAT declared on intra-Community transactions and VAT declared or paid on imports.

A correct invoice is the basis of any deduction. To check yours, see the mandatory information on an invoice.

What about VAT paid abroad?

A hotel in Paris, a trade fair in Cologne: French or German VAT cannot be deducted on your Luxembourg return. Guichet.lu specifies that refunds of foreign VAT on costs incurred in another Member State must be requested directly from the relevant authorities of that State.

When the deduction is limited or not possible

If you use the small-business exemption scheme or part of your activity is exempt, have your calculation method checked: the pro rata is adjusted later, especially for capital goods.

More VAT paid than charged: carried forward or refunded

The first months of activity, or a quarter with large investments, can produce a negative result. According to Guichet.lu, if input VAT is higher than the VAT due, the surplus can either be refunded or carried forward to the next taxable period to be deducted then.

• Carry forward: the surplus moves to future VAT returns of the same calendar year.
• Refund: in theory monthly if the amount is EUR 1,200 or more, otherwise annually provided the amount is higher than EUR 2.40.

When do you claim the deduction?

As a rule, the deduction is claimed on the VAT return for the period in which the VAT became payable. Exception: if you opted for the cash-accounting scheme (possible with annual turnover excluding VAT below EUR 500,000), the deduction is only allowed once the invoice has been paid.

To keep all of this in one place, explore Zuelen’s features.