The document discusses Luxembourg's new "free zone regime" which allows for a suspensive VAT regime for certain supplies of goods. The regime exempts (zero-rates) supplies of goods until they are released for consumption in Luxembourg or delivered intra-community or exported. It applies to supplies intended for customs procedures or warehousing arrangements. Pre-authorized operators can implement the special VAT regimes and act as tax representatives for customers. The new legislation aims to facilitate trade transactions and reduce cash flow effects for economic operators using Luxembourg as a logistics hub.

1. VAT FREE ZONE IN LUXEMBOURG
Erwan LOQUET
Tax Partner
BDO Luxembourg
20th October2011

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3. LUXEMBOURG - "FREE ZONE REGIME"
Legal provision
On 28th July 2011, Luxembourg Parliament amended the existing VAT legislation
(Law of 12th February 1979 - LVL) to introduce a suspensive regime for specific
supplies of goods.
Under this new regime, the supplies are exempted ("zero rate"), until the goods
covered by this new legislation are released for consumption, either on the
Luxembourg territory, or are further delivered in the context of an intracommunity
delivery or an export.
No specific corporate tax or social security regime in the Free Zone : standard
taxation / application of double tax treaties
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4. LUXEMBOURG - "FREE ZONE REGIME"
Legal provision transactions covered
The regime might apply to the following transactions (new article 56sexies LVL /
partial implementation of article 156 of the Directive 2006/112):
a) the supply and intracommunity acquisition of goods which are intended to be
presented to customs and, where applicable, placed in temporary storage;
b) the supply and intracommunity acquisition of goods which are intended to be
placed in a free zone or in a free warehouse;
c) the supply and intracommunity acquisition of goods which are intended to be
placed under customs warehousing arrangements or inward processing arrangements;
d) the supply and intracommunity acquisition and imports of goods which are
intended to be placed under VAT warehousing arrangements;
e) the supply of services related to the above-listed supplies of goods;
f) the supply of goods and the supply of services taking place in the areas listed under
a) to d), when the applicable regimes are maintained.
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5. LUXEMBOURG - "FREE ZONE REGIME"
Legal provision the mechanism
Suspensive regime
only a temporary relief on the VAT (as well as customs and
excise duties in some cases) due on the above-mentionned transactions.
VAT and any other applicable taxes (such as excise duties on alcohol) are levied in
the normal way at the time the goods are released for consumption and are due by
the economic operator responsible for this release
The special VAT regimes shall be implemented and managed by pre-authorised
operators (responsible towards the VAT and customs authorities for the correct
application of the regime and the follow-up on the goods being traded within the
warehouse or the free zone).
Such operators can also act as tax representative of their customers, when the latter
are neither established nor registered for VAT in Luxembourg.
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6. LUXEMBOURG - "FREE ZONE REGIME"
Legal provision the mechanism
A specific VAT identification number will be allocated to the authorised operator(s)
to declare the intracommunity acquisitions / the importation and the supplies taking
place under the regime, on behalf of their customers.
The new legislation entered into effect on 1st October 2011.
On 15th September, the tax authorities also published an administrative circular that
provides for some further details on the mechanism, the background of this
legislation and its interest for the economic operators (facilitate chain transactions
/reduce cash flow effects / encourage certain logistics flows) as well as for the tax
authorities (reduce the risk of carousel frauds on chain transactions).
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7. LUXEMBOURG - FREE ZONE REGIME
Some concrete cases
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8. « Freeport Luxembourg »
Freeport Luxembourg (<Findel Airport)
VAT customs
and
excise
duties
free
area
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Logistic
company
Logistic
company
Logistic
company
Customers (HNWI / investment funds,
Service
suppliers
(valuation
/expertise
/repair /
packaging

9. « Customs warehouse»
Logistic company
Placement
under VAT &
customs
suspensive
arrangements
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Release for
further
dispatch
(intra-EC
deliveries
/exports ) or
local supplies

10. An example of an investment fund (wines / art)
Investors (institutionals / private individuals
SICAV (Luxembourg regulated vehicule / open
ended fund)
Special Purpose Vehicule (trade / ownership of
stock)
Insurance
Transport
Valuation
Marketing
Warehousing
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Stock of wines generally
maintained in Geneva
free port, once purchased
from Bordeaux and
Burgundy producers
(excise duties
Stock value and trade in
exemption

11. Conclusion
Luxembourg free zone
A regime that fits with recent economic developments (Logistics / Art & Finance /
Wine Funds / Passion investments
A regime adapted to the economic operators and the specifities of a determined
market (tax representation / highly secured infrastructures )
A tax regime in line with EU framework and VAT directives (based on artice 156 of the
VAT directive), under supervision of the customs authorities.
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12. VAT FREE ZONE IN LUXEMBOURG
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