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 is 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 is put in place,
the Luxembourg government stands to lose
an estimated EUR220 million (US$320 million)
annually in tax revenues, and, according
to a report, its government is holding
out for a new deal whereby the VAT revenue
from the transaction would be shared between
the two member states.
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.
Luxembourg Facilities
Telecommunications
Providers(s)
Luxembourg's
telecommunications market was liberalised
in 1998, but liberalisation has been slow
and the incumbent, P&T Luxembourg
(EPT), remains dominant. 3G was launched
in 2003.
The
main telecommunications companies are
P&T Luxembourg and Societe Europeenne
de Communication SA (SEC).
In early 2001 the European Commission
took Luxembourg to the European Court
of Justice for an infringement over rights
of way in the country's telecommunications
sector.
The
1996 'full competition' Directive which
provides for the granting of such rights
of way on a non-discriminatory basis was
transposed into Luxembourg law but was
not enforced in practice due to the provisions
being hindered by internal legal and practical
hurdles. Telecoms operators new to the
country complain that they have come up
against a number of difficulties when
deploying their networks.
Internet
telecommunications company Skype is based
in Luxembourg. Founded in 2002 by Niklas
Zennström and Janus Friis, Skype
offers high-quality voice communications
to anyone with an Internet connection
anywhere in the world. The Skype software
is easy to download and install, and enables
free calls between Skype users online.
Skype’s premium services provide
low-cost connectivity to traditional fixed
and mobile telephones. Skype’s software
also offers a robust set of features,
including voicemail, instant messaging,
call forwarding and conference calling.
Upcoming product innovations include Skype
video, expressive content such as avatars,
and customized toolbars for Outlook and
Internet Explorer.
In
September, 2005, eBay agreed to acquire
Luxembourg-based Skype Technologies SA
for approximately $2.6 billion in up-front
cash and eBay stock, plus potential performance-based
consideration.
One
of the fastest growing companies on the
Internet, Skype already has 54 million
members in 225 countries and territories.
Skype is currently adding approximately
150,000 users a day and has created a
thriving ecosystem of products, services,
developers, and affiliates. Skype is considered
the market leader in virtually all countries
in which it does business. In North America
alone, Skype has more users and serves
more voice minutes than any other Internet
voice communications provider.
“Our
vision for Skype has always been to build
the world’s largest communications
business and revolutionize the ease with
which people can communicate through the
Internet,” said Niklas Zennström,
Skype CEO and co-founder. “We can’t
think of any better platform to fulfill
this vision to become the voice of the
Internet than with eBay and PayPal.”
“We’re
great admirers of how eBay and PayPal
have simplified global ecommerce and payments,”
said Janus Friis, Skype co-founder and
senior vice president, strategy. “Together
we feel we can really change the way that
people communicate, shop and do business
online.”
Zennström
and Friis will remain in their current
positions. Zennström will report
to eBay CEO Whitman and join eBay’s
senior executive team.
In
November 2006 a letter sent to the telecom
regulator of Luxembourg, Institut Luxembourgeois
de Régulation, the European Commission
welcomed a regulatory measure proposed
by ILR at the end of September that will
give new market entrants high-speed access
to end-customers (or bit-stream access)
via the broadband networks of Luxembourg’s
telecom incumbent EPT (Entreprise des
Postes et Télécommunications).
EPT is the only supplier in the relevant
market, thus having 100% market share
in the relevant wholesale market.
The remedies proposed by ILR will require
Luxembourg’s telecom incumbent to
open its broadband networks to competitors
by allowing them to purchase a high speed
access link to the customer premises from
EPT with transmission capacity for broadband
data in both direction, thus enabling
new entrants to offer their own, value-added
services to end users.
Under the terms proposed by ILR, bitstream
access will need to be granted by EPT
also to a future VDSL (very high speed
digital subscriber line) infrastructure.
The European Commission announced in July
2007 that it had closed an infringement
procedure against Luxembourg, initiated
as a result of the government's failure
to comply with a Court of Justice judgement
concerning the Luxembourg telecommunications
markets.
In January 2007, the Commission asked
Luxembourg to comply with a Court of Justice
ruling of 12 June 2003, confirming that
Luxembourg had failed to fully transpose
Directive 90/388/CEE on competition in
the markets for telecommunication services
into national law.
Following the adoption of two regulations
establishing transparent access conditions
for new operators, the Commission considers
that Luxembourg now complies with EU law.
ISP
and Hosting Services; Connectivity
ISPs
in Luxembourg include Global Media Systems,
Luxline Internet Services, Visual Online
and Focus Internet Services.
Payment
Processing and certification
There
are three options for payment processing
in Luxembourg. Some ISPs can accept an
e-commerce company's payments through
their own accounts, or those partnered
with WorldPay, for example, can set up
accounts with WorldPay for an e-commerce
company. Finally, there is a DIY option
for e-commerce businesses. Luxembourg-registered
companies can use the online processing
system launched in June 2000 by the Centre
de Transferts Electroniques (Cetrel).
The
natural bonding of the Internet and Offshore
stems from the fact that both, of their
nature, manage to avoid tax. Businesses
which can operate on the Internet without,
so to speak, touching ground in a high-tax
jurisdiction will naturally migrate to
offshore jurisdictions; while businesses
that already have offshore existence will
find it highly convenient to be able to
use the Internet to trade with their high-tax
customers without having to make a landing
in their countries.
As
a major offshore jurisdiction with many
tens of thousands of offshore enterprises
already installed, including many trading
companies, it is only a matter of time
before Luxembourg becomes a centre of
e-commerce activity. The country's location
in the heart of Europe, its good telecommunications
links, sophisticated business infrastructure
and the English-speaking, highly-educated
work-force are all factors which will
attract the sales, marketing and administrative
departments of retail operations, particularly
those trading into other EU countries.
In
many countries, the distribution of goods
from a warehousing facility does not constitute
the carrying on of a trade or business
in that jurisdiction, so that even for
physical goods, in many case it will be
possible to avoid a permanent establishment
(taxable presence) altogether in many
high-tax jurisdictions where trading activities
currently take place.
To
see an analysis of the current state of
legal and tax issues surrounding offshore
e-commerce, click
here.
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Luxembourg
Case Studies
This section will contain case studies
of e-commerce solutions applied to offshore
business activities carried out from Luxembourg.
The case studies will be developed in
association with 
partners. Contact
us to learn more.
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