Luxembourg – VAT status of company directors

Following the decision taken by the European Court of Justice on 21 December 2023 in case TP C-288/22, the Administration de l’Enregistrement, des Domaines et de la TVA (“AEDT”) has made various announcements:

• By means of Circular No 781-1 of 22 December 2023, the Circular 781 of 30 September 2016 has been suspended with immediate effect, until the judgment has been given by the Tribunal d’Arrondissement de Luxembourg, which should be done probably before the end of 2024; as a reminder, Circular 781 had specified that independent Directors had the status of taxable persons for VAT purposes;
• On the same day, the AEDT announced that a detailed circular would be issued once the judgment had been given at national level; the judgement is expected on 22 November 2024;
• In a publication on its website dated 15 January 2024, the AEDT pointed out that it is up to each taxable person potentially affected by this decision to assess whether they are affected by the Court of Justice’s decision case, and if so, whether they should issue corrective invoices to their customers. The AEDT has confirmed that they are exceptionally waiving the statute of limitation for 2018 in respect of Directors’ activities that were erroneously subject to VAT;
• In these two publications, however, the AEDT announced that it is working on a non-bureaucratic way of regularising VAT for Directors, which will be implemented via a specific online procedure, accessible in due course via MyGuichet.

So what should we do?

Luxembourg directors

• Pending the decision to be given by the Tribunal d’Arrondissement de Luxembourg, Directors are authorised to no longer charge VAT on their services;
• The concerned Directors should regularise their situation as from 2018;
• Following discussions between the Institut Luxembourgeois des Administrateurs (ILA) and the AEDT :
  • persons identified for VAT purposes, exclusively for their directorship activities (NACE code 70220), would be exempt from the obligation to file VAT returns as from January 1, 2024; we recommend contacting the VAT office to which the director belongs beforehand;
  • VAT on reasonable expenses, deducted by the directors from 2018 to 2023, should not be refunded to the AEDT;
  • the non-bureaucratic procedure announced by the AEDT should consist of using an application available in MyGuichet, which will enable the director to declare the amounts of VAT invoiced by customer in order to obtain a rapid refund thereof, and then refund that VAT to their customers ;
• In order to benefit from the unbureaucratic procedure announced by the AEDT for the regularisation of the past and pending the announcements to be made by the AEDT, Directors should retain their VAT number and refrain in the immediate future from making any corrections to their VAT returns;
• It is advisable to be prepared to react quickly once the position of the Tribunal d’Arrondissement de Luxembourg is known and the AEDT circular is published. To this end, we recommend that Directors take advantage of the coming months to prepare the following:
  • Inventory of invoices to be corrected, for each client, including the client’s matricule number and, if available, their VAT number;
  • Check that there are no obviously disproportionate expenses from 2018 to 2023 for which VAT would have been deducted;
  • Check the conditions under which the Director is acting, in particular:
    • Duration of the Directorship mandate?
    • Terms of the Director’s intervention?
      • Is the Director a member of a collegial body representing the company?
      • Is the Director a direct representative of the company?
      • Is the Directors free to organise their work as they want?
    • How is the Directors’ remuneration determined?
      • Directors’ fees payable only if the company makes a profit?
      • Directors’ fees payable in all cases?
      • Other modality of remuneration?
      • What impact, if any, does a Director’s misconduct/negligence have on his remuneration?
    • Does the Director bear the economic risk of profit or loss associated with his activity?
    • Does the Director act on his own behalf and under his own responsibility?

Foreign directors

In the case of foreign directors, the Luxembourg VAT registered company receiving the Directorship services should have declared and paid the VAT due on the services received from abroad. Subject to what the AEDT will foresee in such case, the company will probably have to correct the VAT returns filed for past periods.

• It is advisable to be prepared to react quickly once the position of the Tribunal d’Arrondissement de Luxembourg is known and the AEDT circular is published. To this end, we advise that concerned companies take advantage of the coming months to prepare the following :
  • Identification of directors residing abroad from 2018 to 2023 who may have received remuneration; identification of amounts declared per director;
  • Verification of the conditions under which the director operates (same as above for Luxembourg directors).

Once all these elements have been prepared and documented, do not hesitate to contact our VAT specialists, who will help you analyse them to determine whether you are directly affected by the conclusions of the TP case.

The exact scope of application of the new VAT rules has yet to be clarified, as many questions remain, e.g.:

• VAT status of Directors who do not act within the framework of a representative collegial body, e.g. managers (gérant) of limited liability companies (s.à r.l.)?
• VAT status of managers who are VAT taxable legal entities?
• VAT status of services made available by a Director and invoiced by a VAT taxable company?

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