Luxembourg VAT Update: 1-Year Inflation Standard VAT Rate Cut Ends January 2024
Luxembourg VAT Changes for 2024
Luxembourg’s temporary 1% VAT reduction for 2023 is set to expire on January 1, 2024. As a result, VAT rates will return to their previous levels:
- Standard VAT rate: 17% (up from 16%)
- Intermediate reduced VAT rate: 14% (up from 13%) on certain financial services
- Reduced reduced VAT rate: 8% (up from 7%) on gas, electricity, and certain labor supplies
- Super reduced VAT rate: 3% (no change) on books, pharmaceuticals, foodstuffs, water, and newspapers
These adjustments mark the end of the one-year tax relief initiative implemented in response to rising inflation.
The Tripartite Agreement: Why the VAT Cut Happened
On September 28, 2022, the Luxembourg government reached an agreement with unions and employers (Tripartite Coordination Committee) to introduce temporary tax relief measures, including a VAT reduction. This was a response to inflation reaching 6.8% in August 2022, a significant rise compared to the previous year.
Additional Economic Support Measures
The VAT reduction was part of a broader economic support package designed to ease inflationary pressure. Other measures included:
- Heating oil price reduction by €0.15 per liter
- Increase in minimum wage to support low-income earners
- Energy price cap at 15% of current rates
- Subsidies for small and mid-sized businesses to transition to greener energy
- Investment credits improvement to encourage sustainable business growth
- Additional financial support for elderly individuals to manage fuel expenses
Many other European countries also implemented VAT cuts on essential goods like electricity and food to combat the global inflation crisis caused by COVID-19 disruptions and geopolitical tensions, particularly the Russia-Ukraine conflict.
Luxembourg’s VAT Cut on Diesel Fuel
Fuel VAT Reduction from May 2022
Luxembourg introduced a VAT reduction on diesel fuel from May 16, 2022, which lasted until the end of the year. Certain industrial and agricultural uses benefitted from the reduced rate only until the end of July 2022.
Rather than reducing the VAT rate itself, the government implemented the cut by limiting the base amount subject to VAT and providing a refund to fuel sellers. This resulted in an effective VAT reduction from 17% to 14% for most diesel uses.
Luxembourg: A Hub for Fuel Tourism
Luxembourg is well known for its lower fuel prices compared to neighboring countries, thanks to lower VAT and duties. This has made the country a magnet for fuel tourism, with fuel sales averaging 75% of total sales in Luxembourg.
- Diesel prices in Luxembourg are 42% lower than in France
- Gasoline prices are 37% cheaper than in France
- 234 service stations exist in Luxembourg, with 60% located along the borders
Broader European VAT Adjustments
Many European nations have also been adjusting their VAT policies in response to global economic instability. With supply chain issues persisting and inflation affecting essential goods, VAT reductions remain a common tool for governments to provide economic relief.
If you need guidance on Luxembourg VAT compliance, our VAT experts are here to help! Get in touch today to ensure your business stays compliant with the latest regulations.
