Directors' Fees Subject To Luxembourg VAT

On 30 September 2016, the Luxembourg VAT authorities released the long-awaited Circular on the VAT treatment applicable to directors' fees. The Circular confirms that directors' services constitute an economic activity and indicates the director's status of VAT taxable person, irrespective of whether this activity is exercised by an individual or by a company.

Directors' services are therefore subject to Luxembourg VAT at the rate of 17 % when invoiced by a Luxembourg director to a Luxembourg company. Consequently, the VAT registration of the Luxembourg directors is now required.

In the event the director would be established outside of Luxembourg, Luxembourg VAT would be due under the reverse charge mechanism by the VAT registered Luxembourg company which benefits from the director's services.

The circular also reaffirms that directors acting within the framework of an employment contract are not independent and are therefore not considered as VAT taxable persons.

Small enterprise scheme and "honorary" directors

Provided notably that the annual turnover of a director does not exceed a threshold of EUR 25,000.00, the Circular specifies that the small enterprise scheme would be applicable to that director. In such a case, no VAT would be applicable on the services rendered by the director but, as a consequence, no VAT deduction right would be recognised. A VAT registration is nevertheless required in such a case.

Furthermore, "honorary" director services would benefit from a specific VAT exemption already in force in the current Luxembourg VAT Law...