lunes, 19 de diciembre de 2016

Luxembourg clarifies VAT treatment of directors’ fees

The Luxembourg VAT authorities published guidance on 30 September 2016 regarding the VAT treatment of fees for director services, along with a comprehensive list of “frequently asked questions” (FAQ, available in French on the tax authorities’ website). The circular, which will apply as from 1 January 2017, confirms that director services constitutean economic activity that generally will make the director a taxable person for VAT purposes.
Luxembourg VAT, at the standard rate of 17%, will be applicable to director services when the services are considered to be carried out in Luxembourg by virtue of the place-of-supply rules. As a result, services rendered by a Luxembourg director and services rendered by a non-Luxembourg director to a Luxembourg company generally will be subject to VAT:
Independent Luxembourg directors will have to register for VAT purposes by 1 January 2017, at the latest, and will have to file VAT returns to report their income from director fees. However, the VAT registration obligation will not apply to an employee acting as a director for his/her employer; in such cases, the obligation to register and file the VAT return will remain at the level of the employer.
Luxembourg companies that are considered taxable persons for VAT purposes and that receive services from a nonLuxembourg director will have to self-assess the VAT on the director fees under the reverse-charge mechanism. This could lead to a final cost of 17% of the taxable amount for companies that do not have the right to deduct input VAT (e.g. banks, insurance companies), unless an exemption applies for the director services.
In their FAQ, the VAT authorities remind taxpayers that the taxable amount for VAT purposes includes any amount paid to directors for their services, including the withholding tax applicable to director fees.
The circular also reiterates the following:

  • Services carried out by directors serving in an honorary capacity (rather than in an active capacity) can benefit from an exemption from the Luxembourg VAT law if the amounts received by the director qualify as a reimbursement of costs; and
  • Directors may opt for the “small enterprises” regime available for taxable persons with an annual turnover of less than EUR 25,000 per year. Under the regime, the turnover would be exempt from VAT and the director would be subject to limited VAT obligations, while simplified VAT registration would remain mandatory.

Although not mentioned in the circular, it is commonly understood that services carried out by directors of investment funds and certain other entities qualifying to receive VAT-exempt management services may be VAT-exempt when they qualify as “specific and essential” for the activity of the fund.
Source: Deloitte

1 comentario:

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    Register for VAT