Luxembourg's economic policy encourages information technology operations. There are already a number of Internet Service Providers in Luxembourg, but the development of interest in e-commerce is patchy.
In November 2007 Luxembourg continued to hold up an agreement between European Union finance ministers on reforms to the charging of VAT on certain services traded within the EU.
At issue was a proposed change in the VAT charging rules that would mean consumers who buy items from e-commerce firms would pay VAT at the rate of the country in which they are resident, instead of the rate charged in the jurisdiction where the vendor is registered.
VAT in Luxembourg is charged at 15% - the lowest rate permitted in the EU - and the current rules have led dozens of major e-commerce firms such as eBay, Skype and iTunes to set up in the jurisdiction. But if the new VAT system were to be put in place, the Luxembourg government would stand to lose an estimated EUR220 million (US$320 million) annually in tax revenues.
The European Council of Finance Ministers (Ecofin) reached a landmark political agreement in December 2007 on two draft directives and a draft regulation aimed at changing the rules on value-added taxation intended to ensure that VAT on services accrues to the country where consumption occurs, and to prevent distortions of competition between member states operating different VAT rates.
The agreement ended a five-year deadlock on the sweeping changes to the community's VAT laws, but the reverse charging of VAT on the purchases of goods and services electronically will not begin until 2015, with a revenue sharing agreement phased in over the subsequent three years. This has appeased Luxembourg, which used its veto to block the proposed reforms.
See below for specific information on e-commerce in Luxembourg, or go to Offshore-e-com.com for an extensive analysis of the commercial possibilities and the legal background.