Luxembourg VAT Authorities Issue Circular n°7891 On VAT Treatment Of Directors' Fees

On September 30, 2016, the VAT authorities confirmed that VAT shall apply to directors' fees.

From a VAT standpoint, "any person who carries out in an independent and usual manner any economic activity, whatever the purposes or results of that activity" qualifies as a taxable person. By virtue of this principle, the Circular n°781 confirms that directors who supply services are deemed to perform an economic activity within the meaning of VAT. The direct consequence is that directors qualify as VAT taxable persons and are therefore liable to register and charge VAT on their supplies.

The Circular states that, in accordance with the general place of supply rules, services rendered by a foreign director to a Luxembourg VAT taxable person are deemed to be supplied where the recipient is established. Hence, the latter becomes liable to self-assess Luxembourg VAT.

The VAT authorities also confirm that (1) employees who take up mandates on behalf of their employers are not concerned by these provisions due to their lack of independence and that (2) the small enterprises scheme remains available for directors established in Luxembourg whose turnover does not exceed €25,000 per year.

In addition, the scope of the existing VAT exemption provided by Article 44, §1, w) on services supplied within the framework of an honorific activity by the members of public bodies, professional chambers, board of managers or similar bodies and remunerated by attendance fees ("jetons de présence") was limited to the cases where such indemnity is only paid as a compensation for certain costs (i.e. the so-called "défraiements").

In line with the position of the European Commission, the Circular provides clear guidelines to address an area where VAT treatment was previously...

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