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
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
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 inconsistent.
In practice, those who previously took the view that
directors' fees were not subject to VAT will now have to
register for VAT purposes and comply with the Luxembourg VAT law
for invoicing and reporting. For those who are already VAT
registered, the Circular should not have any impact.
Finally, the Circular outlines that the above rules will be
strictly applied as from January 1, 2017, meaning that in practice,
the VAT authorities should not reassess taxpayers in this matter
for prior years.
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