The basic rule: the property decides
For VAT purposes, business-to-business (B2B) services are in principle taxed in the customer's country. But work on immovable property is an exception: services with a sufficient connection to a property, construction, renovation, plumbing, electrical work, roofing, fit-out, but also surveys and expert reports relating to a specific building, are taxable in the country where the property is located, whatever the country of the customer or the supplier.
In practice: if your business, established in France, Belgium or Germany, carries out work on a building located in Luxembourg, the service is subject to Luxembourg VAT. Luxembourg law provides for this expressly (article 17 of the VAT law), in application of the EU rules. It does not matter whether your customer is a private individual, a developer or a company: the location of the property determines the regime.
The classic trap: assuming the reverse charge applies
It is the mistake we come across most often. Used to standard intra-EU services, many businesses invoice their Luxembourg customer without VAT, with the mention “reverse charge”, as they would for a consulting or transport service.
Yet for services connected with a property located in Luxembourg, that reflex is wrong: the general reverse-charge mechanism does not apply. The foreign business must register for Luxembourg VAT and charge Luxembourg VAT to its customer. Invoicing without VAT in this situation exposes you to a VAT reassessment: a tax you never collected but which the administration will claim from you, with interest and, where applicable, penalties.
First of all: notification to the Ministry of the Economy
VAT is not the first step. Before working in Luxembourg, a craft or industrial business established in the European Union must notify its occasional and temporary provision of services to the Ministry of the Economy. This prior notification, which replaces the business permit from which you are exempt as a temporary provider, is made online via MyGuichet.lu or by post, with documents showing that you operate lawfully in your home country: an EC certificate issued by your professional chamber (a Chamber of Trades, for example) less than six months old, a recent extract from the commercial register, and a €50 chancellery stamp.
Important point: the notification is valid for one year, renewable on request. If your work in Luxembourg is spread out or repeated, remember to renew it. Purely commercial or professional activities are in principle exempt, as are certain trades, but for construction and crafts it is a mandatory step. In practice, this notification conditions the rest of your administrative journey, including your registration for Luxembourg VAT.
Registering for Luxembourg VAT: when and how
As soon as you carry out taxable transactions in Luxembourg without being able to apply a reverse charge, registration for Luxembourg VAT is compulsory, from the very first transaction: unlike businesses established in the Grand Duchy, non-resident businesses benefit from no tolerance threshold.
The application is made to the Registration Duties, Estates and VAT Authority (AED), which has departments dedicated to foreign operators. Our advice: start the process before work begins, because you need your number to invoice correctly from the first progress statement. Registration then entails recurring obligations: filing Luxembourg VAT returns, invoicing to local standards, keeping records.
Note: a cross-border exemption scheme exists within the European Union for small businesses, subject to strict turnover conditions. Its application to construction work must be checked case by case: never assume an exemption without analysis.
The special case of subcontracting
An important nuance has recently been added: Luxembourg has introduced a domestic reverse-charge mechanism specific to the construction sector. When a subcontractor carries out construction work for a principal who is itself a taxable person carrying out construction work (typically a general contractor), the subcontractor invoices without VAT and the principal accounts for the VAT under the reverse charge.
In other words, the VAT treatment of your project also depends on your place in the chain. Are you working directly for the project owner, or as a subcontractor for a general contractor? The answer changes the invoicing. It is an analysis to be carried out contract by contract, and an appropriate mention must appear on your invoices in each case.
Beyond VAT: the other obligations of a cross-border site
VAT is only part of the story. Working on a site in Luxembourg triggers other obligations that it would be unwise to ignore:
- The posting of your employees must be declared beforehand to the Inspectorate of Labour and Mines (ITM), and every person present on site must be covered by an A1 certificate attesting to their affiliation with the social security system of their home country;
- The duration of the site matters: beyond a certain duration, which varies with the applicable tax treaty, generally between six and twelve months, your site may constitute a permanent establishment in Luxembourg, with consequences for tax on profits;
- Inspections are frequent: foreign providers receive particular attention from the Luxembourg authorities, on both the social and the tax side. A file in order before the first day on site is better than a forced regularisation.
Our checklist before starting a site in Luxembourg
To approach your work in the Grand Duchy with peace of mind, here are the reflexes we recommend, in order:
- Notify your occasional and temporary provision of services to the Ministry of the Economy (valid for one year, renewable);
- Qualify the transaction: is it indeed a service connected with a property? Direct, or as a subcontractor?
- Determine the applicable VAT treatment and, if necessary, apply for registration before work begins;
- Adapt your invoicing: Luxembourg VAT at the right rate, or the appropriate reverse-charge mention as the case may be;
- Declare the posting of employees (ITM) and obtain the A1 certificates;
- Assess the expected duration of the site against the risk of a permanent establishment;
- Organise the filing of Luxembourg VAT returns for the whole duration of the work.
Do you work regularly in Luxembourg, or are you about to sign your first contract there? Thanks to our dual Franco-Luxembourg presence, we handle these situations from start to finish: VAT analysis, registration, returns, and coordination with your obligations in your home country.