On 11 December 2024, the Luxembourg Indirect Tax Authorities (Administration de l’enregistrement, des domaines et de la TVA) issued a new circular No. 781-2 on the VAT treatment of director’s fees following the decision of the European Court of Justice (the “ECJ”) in case C-288/22, TP v. Administration de l’enregistrement, des domaines et de la TVA and the subsequent judgment of the Luxembourg civil tribunal, 3rd Chamber dated 22 November 2024 No. 2024TALCH03/00180.
VAT treatment of directors’ fees
On 22 November 2024, the Luxembourg civil tribunal handed down its decision on the VAT treatment of director fees applying the ECJ’s decision. The civil tribunal found that the director of a Luxembourg limited company (société anonyme) carries out, in principle, an economic activity within the meaning of the law dated 12 February 1979 on value added tax (VAT Law), as the activity of company director is remunerated and permanent in nature. It however found that this activity is not carried out independently within the meaning of the VAT Law because, despite the fact that the board member (i) is free to arrange how he or she performs their work, (ii) receives the emoluments making up his or her income, (iii) acts in his or her own name and (iv) is not subject to an employer-employee relationship – he or she does not act on their own behalf or under their own responsibility and does not bear the economic risk linked to their activity.
It follows that a member of the board of directors of a limited company who (i) does not act on their own behalf or under their own responsibility and (ii) does not bear the economic risk linked to their activity, does not exercise his activity as board member independently and therefore cannot be considered as a taxpayer within the meaning of VAT. Director fees are therefore not subject to Luxembourg VAT.
Scope of the circular and reimbursement process
Per their newly published circular No. 781-2, the Luxembourg Indirect Tax Authorities have announced that the consequences of this decision will extend to all company forms under Luxembourg law, if the director meets the above description.
Eligibility for VAT reimbursement
Thus, all directors which meet the above criteria may benefit from a reimbursement of VAT collected in the exercise of their directorship. Directors may apply for a reimbursement for all years which are not time-barred. In addition, the administration has announced that it will waive the prescription for the years 2018 and 2019, if the reimbursement request is filed before 1 July 2025. To obtain reimbursement, directors should file an online request accessible on myguichet.lu which will be accessible until 30 June 2025 (https://pfi.public.lu/fr/services-en-ligne.html).
Impact on input VAT deductions
The administration will not reexamine input VAT deductions for simple expenses which the director may have incurred during the exercise of this directorship. However, significant deductions such as capital expenditure may be re-examined.
Impact on non-resident directors
Finally, directors who meet the above criteria, but are not established in Luxembourg do not have a right to request a reimbursement since the VAT on director fees was collected by the Luxembourg company who received the service. Those companies may correct their VAT position for all years concerned in their next annual return.
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