Legal entities acting as directors | KPMG | BE

Legal entities acting as directors: remuneration subject to VAT effective June 1, 2016

Legal entities acting as directors

Until June 1, 2016, the Belgian VAT authorities gave legal entities acting as directors the option of not registering for VAT purposes. This effectively meant they were exempt from various obligations imposed on Belgian VAT taxpayers. As a result, legal entities acting as directors did not need to charge Belgian VAT to the businesses and non-profit organizations where they acted as directors.

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Until June 1, 2016, the Belgian VAT authorities gave legal entities acting as directors the option of not registering for VAT purposes. This effectively meant they were exempt from various obligations imposed on Belgian VAT taxpayers. As a result, legal entities acting as directors did not need to charge Belgian VAT to the businesses and non-profit organizations where they acted as directors.

A convenient option...

This was essentially an option system. For a long time, all legal entities acting as directors in businesses with a high right to VAT deduction have registered for VAT purposes in Belgium, but up to now legal entities acting as directors in businesses or associations not entitled to VAT deduction (or with a very limited right to VAT deduction) have not registered, in order to avoid paying VAT on their remuneration as directors.

...that is abolished from June 1, 2016

Under pressure from the European Commission, Belgium has abolished the option for legal entities acting as directors of registering or not registering for VAT purposes. Effective June 1, 2016, all legal entities acting as directors must register for VAT purposes and are classified as VAT taxpayers. This means that from June 1, 2016 onward they must apply VAT when invoicing for their remuneration as directors. 

Still without VAT?

The authorities published decision E.T. 127.850 of March 30, 2016 to clarify the new administrative stance and to soften the impact on the many sectors with only limited entitlement to VAT deduction (including the real estate sector, the financial and insurance sector and the non-profit sector, among others).

 

Many cases are taken into consideration in this decision. Depending on the circumstances, all or part of the VAT can be avoided by providing services free of charge, applying the threshold for small businesses, using specific VAT exemptions (such as those for the management of collective investment institutions, for mediation and management in insurance, et cetera), or even by setting up a VAT group, as long as all relevant conditions are fulfilled.

No right to deduction of historical VAT

The right to deduct historical VAT (paid but not deducted for investments acquired before June 1, 2016) is revoked in this decision on the grounds that legal entities acting as directors which chose not to register as VAT taxpayers for their activity were classified as non-VAT payers with no right to the deduction. However, this position of the VAT authorities can in our view be challenged. 

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