Luxembourg VAT Rate Increase and Fiscal Context
Luxembourg: Increase of VAT rates in 2015
Planned Tax Reform and Implementation Timeline
The Government of Luxembourg expressed its intention to carry out a complete tax reform in 2016, expected to be implemented by 2017.
The Government intends to simplify the tax system as well as to improve the income tax indexing mechanism in consultation with social partners, and finally to strengthen legal provisions against value-added tax evasion.
Prime Minister, Xavier Bettel, pointed out that Luxembourg must reduce its expenditure and raise revenue, as public debt currently stands at EUR 11 billion and will rise to EUR 15 billion by 2016 if the Government’s fiscal policy remains unchanged.
Revenue Implications of VAT Rate Changes
The Government’s decision to raise VAT rates as from January 1st, 2015, will raise income by around EUR 350 million.
From the beginning of 2015, the standard rate of VAT will increase from 15% to 17%, while the reduced rates of 12% and 6% will rise to 14% and 8%, respectively. The “super reduced” rate on basic commodities, such as food, children’s clothing, books, and entry tickets to cinemas, theatres, and museums, will remain unchanged at 3%.
The Government further decided that the 3% rate for renovation works carried out on a main residence will remain, but will no longer allow the rate to be applied for works undertaken on a second home.
Even with the raise of the VAT rates in Luxembourg, these will still remain the lowest in the EU.
Ukraine Tax Legislation Amendments and Economic Recovery
Ukraine: Changes in tax legislation
On March 31st, 2014, Law of Ukraine “On preventing financial catastrophe and creating grounds for economic growth in Ukraine” No. 1166-VII, came into effect.
Key Fiscal Measures and Taxation Changes
The Law proposes fiscal measures for economic recovery and substantial changes to personal and business taxation, in particular:
- Corporate income tax rate is fixed at 18% (a decrease to 16% was planned);
- VAT rate also remains at 20% (a reduction to 17% was planned). In addition, pharmaceuticals become subject to 7% VAT as from April 1st, 2014. Supply of grain and technical crops within the Ukraine and export remain free from VAT until October 1st , 2014;
- Personal income tax at the rate of 15%, 17%, 20% or 25%, depending on the amount of income, will apply and individual investment income as from July 1st, 2014, and will also apply to dividends, interest and royalties. Entities paying out such income will have to withhold a tax rate of 15%, and the difference must be paid by individuals themselves;
- The rates of excise tax, residential real estate tax, ecological tax, fee for the use of subsoil for mining, fee for the use of radiofrequency, and fee for the first registration of a vehicle are increased, and indexation of fixed agricultural tax is introduced;
- 0,5% pension duty will be raised on purchase of foreign currency (including cash) by individuals and legal entities;
- The maximum amount of the VAT exemption applicable to goods mailed internationally (online purchases) was lowered from EUR 300 to EUR 150.
It is not indicated in the Law, whether these changes are temporary.
