VAT FREE ZONE IN LUXEMBOURG

Erwan LOQUET

Tax Partner

BDO Luxembourg

20th October2011

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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 intracommunitydelivery 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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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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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-authorisedoperators (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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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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Some concrete cases

LUXEMBOURG - FREE ZONE REGIME

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« Freeport Luxembourg »

Freeport Luxembourg (<Findel Airport)

Logisticcompany

Logisticcompany

Logisticcompany

Customers (HNWI / investment funds,

Service suppliers(valuation/expertise /repair /

packaging

VAT -customs

and excise dutiesfree area

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« Customs warehouse»

Logistic company

Placement under VAT &

customs suspensive

arrangements

Release for furtherdispatch(intra-EC deliveries

/exports ) or local supplies

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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)

InsuranceTransportValuationMarketing

Warehousing

Stock of wines generally

maintained in Geneva

free port, once purchased

from Bordeaux and

Burgundy producers

(excise duties

Stock value and trade in

exemption

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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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VAT FREE ZONE IN LUXEMBOURG