The Circular confirms that directors' services constitute an economic activity and confirms their status as VAT-taxable persons, irrespective of whether this activity is exercised by an individual or by a company and irrespective of the form of remuneration. It should be mentioned that a company’s reimbursement of a director’s expenses would not be considered as a form of remuneration and would therefore not be subject to VAT.
In practice, if the director is established within Luxembourg, the director will be responsible for collecting the VAT at a rate of 17%, unless the service qualifies as a VAT-exempt fund management service or the director’s annual turnover is below EUR 25,000. If the director is established outside Luxembourg and the Luxembourg company paying the director’s fees is not VAT-registered, Luxembourg VAT will not apply. If, however, the Luxembourg company is subject to VAT, Luxembourg VAT would be due under the reverse charge mechanism.
The Circular also confirms that directors acting within the framework of an employment contract are not to be deemed independent and are therefore not considered taxable persons for VAT purposes.
For further information, please contact David Maria, Tax Partner.