VAT Newsflash

VAT rectification for Directors’ fees

<img src="frank heykes grant thornton luxembourg.png" alt="frank heykes grant thornton luxembourg">
By:
Frank Heykes
02 Apr 20251 min read
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Following the Court of Justice of European Union (CJEU) decision in case C-288/22 and the subsequent judgment of the Luxembourg District Court on 22 November 2024, the Luxembourg VAT authorities (AED) issued Circular N° 781-2 on 11 December 2024.
Contents

This circular clarifies the VAT treatment of directors' fees, confirming that directors who do not act under their own responsibility and do not bear the economic risks associated with their role are not considered independent taxable persons for VAT purposes. Therefore, their services fall outside the scope of VAT.

A non-bureaucratic regularisation process has been introduced, allowing directors to adjust their VAT position.

Regularisation process

For local Luxembourg directors:

  • A simplified VAT regularization process is available via MyGuichet.lu until 30 June 2025 (https://pfi.public.lu/fr/services-en-ligne.html).
  • Directors may apply for a reimbursement of VAT collected in the exercise of their directorship for all non-time-barred years.
  • The AED has waived the statute of limitations, allowing for regularization for the years 2018 and 2019, provided the request is submitted before 1 July 2025.

For the non-Luxembourg directors:

  • Non-resident directors meeting the above criteria do not have a right to request VAT reimbursement since the VAT was collected by the Luxembourg company receiving the service.
  • Luxembourg companies that have self-assessed VAT by applying the reverse charge mechanism on fees paid to non-Luxembourg directors can adjust their VAT reporting in their next annual VAT return.

Impact on VAT Registration:

  • Directors who no longer qualify as taxable persons should consider VAT deregistration unless they carry out other VAT-taxable activities.

Impact on Input VAT Deductions:

  • The AED announced not to challenge input VAT deductions made by local directors for simple expenses incurred for this activity.
  • However, significant deductions such as capital expenditures may be subject to review and potential regularisation.

Practical Implications

Additionally, Luxembourg directors should seek clarification with the companies in which they performed their directors’ services. However, this is guided mainly be civil law regulations and depends on the underlying agreements.

How we can help

For further guidance on the impact of Circular N° 781-2, do not hesitate to reach out to our VAT expert Frank Heykes.

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Authors
  • <img src="frank heykes grant thornton luxembourg.png" alt="frank heykes grant thornton luxembourg">
    Frank Heykes Frank is Partner, VAT & Indirect Tax at Grant Thornton Luxembourg