The Luxembourg VAT authorities (hereafter ‘AED’) released on 11 December 2024 a circular 781-2 (hereafter ‘Circular’) clarifying the VAT treatment of director’s fees.
The Circular has been issued further to the decisions rendered by the European Court of Justice on 21 December 2023 (C-288/22) and by the Luxembourg District Court on 22 November 2024, both related to the status of a board member of a public limited liability company for VAT purposes.
The Circular confirms the position of the AED, in line with the above case-law, according to which directors do not perform an economic activity in an independent manner in the situation where they do not act for their own account neither under their own responsibility and do not bear the economic risks linked to their activities.
In the absence of any independent character, the activities performed by such directors do not qualify as economic activities within the meaning of the VAT law. As a result, directors performing their activities without any independent manner do not qualify as VAT taxable persons.
It is up to each director to analyze its personnel situation in order to determine whether its activities are performed independently or not.
While the above case law concerned the case of a director of a public limited liability company, the Circular extends the consequences of the decisions to any director, whatever the legal form of the company for which they act as director. In addition, the Circular does not make any distinction with respect to the nature of each director and applies to all directors, irrespective of whether they are private individuals or legal persons.
Luxembourg resident directors who are not performing their activities in an independent manner in line with the criteria set by the above decisions are eligible for a regularization of the VAT charged on their services. The AED confirmed that they renounce to the 5 years statute of limitation period in relation to the year 2018. With respect to the year 2019, the regularization is possible to the extent the request is sent before 1 July 2025.
The AED put in place a non ‘bureaucratic’ procedure allowing the concerned directors to regularize their situation for different years in once through MyGuichet.lu. This procedure is available for the first six months of the year 2025.
Directors regularizing their VAT situation are responsible to remit the VAT charged to their respective clients.
In terms of input VAT deduction right, the AED confirmed that they will not challenge the deduction right of directors but only for ‘simple’ expenses necessary for the performance of their activities. On the other hand, substantial expenses will automatically be subject to a review by the AED.
For non-Luxembourg resident directors having charged director fees to a Luxembourg VAT registered entity, the regularization of the VAT will have to be made in the hands of the Luxembourg entity, as the latter was liable to account for VAT under the reverse charge mechanism. The regularization will need to be made in once in the next annual VAT return due in Luxembourg for all years concerned.
