Recent judgments from the Court of Justice of the European Union (CJEU) and the Luxembourg District Court have clarified VAT obligations for Luxembourg board members.
On 11 December 2024, the Luxembourg VAT administration issued circular 781-2 to address the implications of these rulings confirming that directors who do not act on their own responsibility and do not bear the risk of the activity exercised should not be considered as a VAT taxable person.
Here is what you need to know:
Key points from the circular
- Economic activity defined: A board member's role qualifies as an "economic activity" if they provide services for payment on a permanent basis with foreseeable remuneration.
- Independence criteria: Board members should not be considered independent if they don't bear personal responsibility or economic risk for their activity.
- VAT liability: Services provided by board members who do not act should not fall within the scope of Luxembourg VAT.
Administrative implications
Self-assessment: Directors and managers must evaluate their status to determine VAT liability.
Adjustment opportunities:
- Non-independent directors and managers registered as VAT taxpayers can apply for VAT adjustments for non-prescribed years (including 2018 and 2019).
- A streamlined process for adjustments will be available via lu during the first half of 2025.
Expense deduction: The administration will not challenge minor expense deductions, though significant investments may be reviewed.
Special cases
- Foreign directors: Directors residing outside Luxembourg are exempt from adjustments; the client company is responsible for any corrections.
- Circular N°781 reinstated: Obligations under Circular N°781 (suspended in 2023) are reinstated for directors qualifying as VAT taxpayers.
Impact on companies
These rulings reinforce the need for clarity on VAT obligations for board members and their companies. Directors should assess their roles carefully, leveraging the streamlined adjustment process to address past liabilities.
These updates underline the importance of clarity regarding VAT obligations for directors and their companies. The streamlined procedures offer a clear path for directors and businesses to rectify past VAT issues efficiently.
For further details, the Circular 781-2 (in French) can be found here or visit MyGuichet.lu.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
