On 30 September 2016, the Luxembourg VAT authorities (Administration de l’Enregistrement et des Domaines) published a new Circular (N° 781) concerning the VAT status of directors of companies and the VAT treatment of their activities.
The Circular clarifies that independent directors have the status of taxable persons (VAT entrepreneurs) and that their activities are subject to VAT at the standard rate of 17%. In the case of foreign directors of Luxembourg-based companies, VAT on directors’ fees has to be self-assessed by the company under the ‘reverse charge’ mechanism, except if that company is not engaged in any economic activities.
Luxembourg-resident directors whose total annual turnover does not exceed EUR 25,000 are not obliged to register for VAT and to charge VAT on their fees.
Employees carrying out directorial functions in representation of their employer are not considered as taxable persons and are therefore not subject to VAT rules (any related VAT obligations being the responsibility of the employer).
Director services supplied in an honorary capacity benefit from a VAT exemption provided that the indemnification of the director is limited to a pure reimbursement of costs.
Directors are asked to strictly comply with their VAT obligations as from 1 January 2017.