New Luxembourg VAT on directors’ fees
On 21 December 2023, the Court of Justice of the European Union (CJEU) rendered its judgment in the case C-288/22 on the VAT treatment to be applied to directors’ fees.
In its judgment, the CJEU considered, in line with the Advocate General opinion from July 2023, that in the case under review the director of a Luxembourg public limited liability company should not be considered as acting independently as they did not act on their behalf nor assume any personal economic risks in relation to their position on the board.
The CJEU considered that the director did not assume any personal risks as it is the board of directors which is liable for any wrongdoing as per Luxembourg corporate law and not the director personally. Considering that being independent is a key principle to be treated as a VATable person, a director who cannot be considered as effectively acting independently would not need to register to VAT and hence should not charge any VAT on services provided to the company to which they act as director.
This judgment goes against the Luxembourg VAT administration’s circular n°781 which has been in force since 1 January 2017 and which considered that directors services supplied for consideration were to be considered as in scope of Luxembourg VAT, triggering VAT registration and compliance for these directors.
Following the CJEU judgment, on 22 December 2023 the Luxembourg VAT administration issued circular n°781-1 which expressly states that circular n°781 is, for the time being, suspended. On that basis, VAT should not, in principle, be charged on most directors' service contracts.
On 15 January 2024, the Luxembourg VAT administration issued some practical guidance. In a nutshell, relevant directors should issue rectifying invoices to the Luxembourg company to which they provide(d) director services to request a VAT refund from the VAT administration. The VAT refund could be requested as from fiscal year 2018.
The Luxembourg VAT administration also plans to introduce a special regularisation process, which should be available in due course on the Luxembourg administrative web portal myGuichet.
Additionally, from a practical perspective, directors should de-register from VAT (provided they do not carry out any other VATable activity), consequently losing VAT input deduction rights.
Given the complexity and individual nature of these changes, reviewing each situation on a case-by-case basis is advisable to assess the impact of the ruling and the next steps.
