VAT exemption in Luxembourg: the €50,000 threshold

The short version. Since 1 January 2025, a small Luxembourg business charges no VAT as long as its annual turnover stays below €50,000, with a 10% tolerance that pushes the real ceiling to €55,000 for the current year. In return, it loses every right to recover input VAT on its purchases. A second strand, the cross-border scheme, has allowed businesses since the same date to sell VAT-free in other Member States up to €100,000 of EU-wide turnover, after registering in advance with the AED through MyGuichet.lu.

The small business VAT exemption is the most misunderstood part of starting up in Luxembourg. Plenty of founders treat it as free paperwork relief, opt in by reflex, then discover they cannot reclaim the VAT on their equipment, their rent or their subcontractors. Others ignore it entirely when it would save them an hour every quarter at no cost at all. Here is how the scheme actually works, with the figures in force in July 2026, and the calculation that settles the question.

What is the small business VAT exemption in Luxembourg?

The exemption scheme releases a small business from charging VAT on its sales as long as annual turnover stays under the €50,000 national threshold. Its invoices carry no VAT and it files no periodic returns. In exchange, it cannot recover the VAT it pays on purchases and investments.

The €50,000 threshold and the 10% tolerance

The national threshold rose from €35,000 to €50,000 on 1 January 2025, as part of Luxembourg's transposition of the EU directive on the small business scheme. The exit mechanism deserves a closer look, because it does not work the way most people assume.

In other words, crossing €50,000 in October does not force you to re-invoice clients for the months already billed, provided you stay under €55,000 at 31 December. That is real breathing room. Going past €55,000, though, tips you over immediately: you have to register, reprice, and sometimes correct transactions already invoiced. The rules sit in articles 57 and following of the amended VAT Law of 12 February 1979, and the Registration Duties, Estates and VAT Authority publishes its official FAQ on the SME scheme, consulted in July 2026.

What the exemption really costs you

This is the part nobody calculates before choosing, and the only part that matters. Under the exemption you deduct nothing. Every euro of VAT paid to your suppliers becomes a permanent cost.

Take a concrete case. An independent consultant turns over €45,000 with Luxembourg clients who are themselves VAT-registered. Over the year they buy €8,000 excluding VAT of equipment, software and professional services, which carries roughly €1,360 of VAT at the 17% standard rate. Under the exemption, that €1,360 stays out of pocket for good. Under the normal regime they recover it, and their VAT-registered clients recover the VAT charged to them: nobody loses. The exemption therefore costs them €1,360 a year in exchange for lighter admin.

The logic flips entirely if your clients are consumers. There, not adding 17% makes you either cheaper at the same shelf price or more profitable at the same price to the customer. That is the real question to answer: who are your clients, and can they reclaim VAT?

The cross-border scheme: selling across the EU without registering everywhere

This is the newest strand and the least used. Before 2025, the exemption stopped at the border: the moment a small Luxembourg business sold into another Member State, local rules applied. Since then, a cross-border scheme allows the exemption to travel, on two cumulative conditions.

• Your total turnover across the whole European Union stays under €100,000 a year.
• Your sales in each Member State concerned stay under that country's own national threshold, which is not necessarily €50,000.

Registration is required in advance, with the AED through MyGuichet.lu, using a LuxTrust product or an electronic identity card. Once registered, the business no longer has to obtain a VAT number or file returns in the other Member States for covered transactions. In exchange, it reports its turnover per country to the AED every quarter. Guichet.lu set out these arrangements in a news item dated 18 May 2026, and covers the procedure on its dedicated cross-border exemption page.

One detail worth catching: if you cross the €100,000 EU ceiling, you lose access to the exemption in other Member States for at least one calendar year, but you can stay exempt in Luxembourg as long as you remain eligible there. The two schemes are independent.

Exemption or normal regime: the decision grid

Three questions settle most cases.

1. Are your clients VAT-registered? If so, the VAT you charge costs them nothing, and the exemption simply strips you of your deductions. The normal regime almost always wins.
2. Do you have investments ahead? Equipment, a vehicle, fitting out premises: recoverable VAT can run into several thousand euros in a single financial year.
3. Where is your growth heading? If you are aiming at €80,000 next year, opting in for twelve months and back out again means a transition to manage, a price change to explain to clients and an accounting setup to redo.

Note that an eligible business can voluntarily opt for the normal regime. This is not something imposed on you. It is a choice, and it can be revisited.

What it changes in your accounts

Far less than people expect. Being exempt does not release you from keeping accounts under the PCN 2020 standard chart of accounts, from preparing and filing annual accounts, or from declaring your profits. It removes one workstream, the periodic VAT return, and nothing else. An exempt company still has to file its annual accounts on time and pay corporate income tax, municipal business tax and net wealth tax like anyone else.

Which is why "the exemption means less accounting work" does not hold up. The real workload on a file is not four VAT returns a year, it is day-to-day bookkeeping, closing and filing. At Advena the fixed fee starts from €325 per month, all in, whether you are exempt or on the normal regime, because the work is essentially the same.

Where the setup does matter is in the software. We keep your books in the Odoo we deployed for you, with fiscal positions configured for your regime. If you switch mid-year because you went past €55,000, the change happens inside the database where your invoicing already lives, with no manual rework and no two months of drift. You see cumulative turnover in real time, so you see the threshold coming before you cross it. This is exactly the situation where accounts delivered eight months later are worth nothing.

Who the exemption does not suit

Let us be blunt, because the scheme is routinely sold as a universal win. The exemption is a bad deal if you sell to VAT-registered businesses, if you invest, if you import, or if your turnover is already approaching €50,000. It makes sense for an activity that is just starting, a side activity, or a consumer-facing activity with few purchases. Outside those cases it costs you money in return for admin comfort your accountant absorbs anyway.

Frequently asked questions

What is the VAT exemption threshold in Luxembourg in 2026?

The national threshold has been €50,000 of annual turnover since 1 January 2025, with a 10% tolerance on top. A business that goes above €50,000 without exceeding €55,000 keeps the exemption until 31 December but loses it for the following calendar year.

Do you still need to register for VAT under the exemption?

Anyone carrying on an activity that makes them a taxable person must in principle file an initial declaration with the AED within 15 days of starting that activity, including to be placed under the exemption scheme. The filing is done through MyGuichet.lu.

Can you recover VAT under the exemption scheme?

No. That is the trade-off: no VAT is charged to clients, and no VAT paid to suppliers is deductible. It becomes a permanent cost, which penalises businesses that invest or buy heavily.

What is the cross-border exemption scheme?

It is a mechanism available since 1 January 2025 that lets a small Luxembourg business sell VAT-free in other Member States, provided its total EU turnover stays under €100,000 and it respects each country's national threshold. It requires advance registration with the AED and a quarterly turnover report per country.

Can you waive the exemption and opt for the normal regime?

Yes. An eligible business can choose to apply the normal VAT regime, which restores its right to deduct input VAT. This is often the better choice for a business invoicing professional clients or making investments.

Further reading

• Accounting firm in Luxembourg: the complete guide for an SME
• Luxembourg VAT returns: filing frequency, eCDF and deadlines
• What an accounting firm costs in Luxembourg: fixed fee, hourly rates and hidden extras
• Corporate tax in Luxembourg: CIT, municipal business tax and net wealth tax
• Outsourcing your accounting in Luxembourg: when, why, how much

Why Advena?

We keep the books of Luxembourg SMEs inside the management system we deploy ourselves, on a fixed fee announced up front from €325 per month, with no invoice outside the monthly fee. Watching the exemption threshold is part of routine work: you do not discover a breach at closing. The figures and procedures cited here come from the AED's FAQ and from Guichet.lu, consulted in July 2026; thresholds can change, so check the official source before committing to anything.