Karine Bellony, managing partner at VAT Solutions. Photo: Paperjam

Karine Bellony, managing partner at VAT Solutions. Photo: Paperjam

From 2028, a new EU reform will help to reduce the use of foreign VAT registrations. The extension of the OSS and the widespread introduction of reverse charge will simplify companies’ reporting obligations.

From 1 July 2028, the second pillar of the European Vida (VAT in the Digital Age) reform will transform the way businesses operating internationally manage their VAT.

Its aim is to reduce the number of foreign VAT registrations by extending the One Stop Shop (OSS) schemes and harmonising the reverse charge rules applicable to domestic transactions conducted by non-established businesses.

For Luxembourg-based companies, this reform offers a major opportunity to simplify VAT compliance, provided they start preparing for it now.

Three high-impact developments

The first concerns the wider application of the reverse charge mechanism provided for in Article 194 of the VAT Directive. From 1 July 2028, it will become mandatory for domestic transactions carried out by a non-established business for a customer registered for VAT and will, in many cases, eliminate the need for local VAT registration. France, Belgium and Germany already apply this mechanism extensively, unlike Luxembourg.

The second development is the extension of the EU One Stop Shop (OSS). Previously limited to certain services and intra-community B2C distance sales, it will now also cover local sales, whether or not they involve installation. This will eliminate many national reporting requirements.

Finally, transfers of stock between member states, which are currently treated as exempt intra-community supplies, will be reportable through a new OSS Transfer scheme. This is a particularly welcome development for Luxembourg-based businesses that store goods in border regions.

Example

A Luxembourg-based company that transfers goods to a warehouse in Germany to supply German customers is generally required to register for VAT in Germany. From 2028, this requirement is expected to be abolished, regardless of whether the goods are sold to German businesses or private individuals.

Essential preparation

These simplifications will not happen automatically. They require the relevant transactions to be identified and their eligibility for the new schemes to be assessed.

One point that is often overlooked is that the OSS operates on a comprehensive basis. A company that opts for this scheme must declare all eligible transactions under it; it is not possible to select only the most advantageous ones.

The two years leading up to Vida’s entry into force therefore provide an ideal opportunity to map VAT flows, identify registrations that are likely to be phased out, and adjust ERP settings. This approach will ensure a smooth transition to Vida, reduce compliance costs and prepare for the introduction of electronic invoicing in Luxembourg.

VAT Solutions has extensive experience in these areas and is here to support you.

For more information, visit www.vat-solutions.com/fr/vat-services.

A full version of this article is also available in French.

This promotional article was written by VAT Solutions as part of the company's membership with the Paperjam Club. If you would like to become a member of the Club, please contact us at club@paperjam.lu.