On 30 September 2016, the Luxembourg VAT authorities published a circular clarifying the treatment of directors’ fees for VAT purposes.
Further to this document, it is confirmed that Luxembourg-resident directors are to be considered as taxable persons for VAT purposes and that the management services they supply should, in general, be subject to VAT.
Therefore, they are required to register for Luxembourg VAT, and to apply VAT on the services they invoice to the Luxembourg entities they manage or the foreign non-taxable persons for which they act as directors, unless a VAT exemption applies. The rate applicable in such cases is the standard VAT rate of 17%.
Further to article 57 of the Luxembourg VAT Law, the franchise regime could apply to Luxembourg-established directors if they fulfill the conditions provided under this article (in particular if their income from this taxable activity falls below the yearly threshold of EUR 25,000).
However, where they do not act independently (e.g. when their mandate is exercised in the name of, and on behalf of, their employer), they are not to be considered as taxable persons for VAT purposes.
The reverse-charge mechanism should apply to the services provided by foreign directors (resident outside of Luxembourg) to taxable persons established in Luxembourg.
Note that this circular does not include any specific provisions regarding directors of qualifying investment funds. The VAT exemption applicable to fund management services should therefore be confirmed on a case-by-case basis.
The strict application of these principles will be under specific scrutiny from the Luxembourg VAT authorities as from 1 January 2017.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.