The District Court issued decision regarding VAT on director fees

At a Glance

On 22 November 2024, the District Court declared void the tax assessment against Mr. TP that claimed VAT on his director fees.

A closer look

VAT status of directors in Luxembourg: Decision of the District Court

It should be reminded that Mr. TP refused to apply Luxembourg VAT in 2019 on the remuneration he received from different Luxembourg “société anonyme” (public limited company) for his activity as a director. The Luxembourg VAT authorities issued a tax assessment claiming this VAT. The dispute was brought to the District Court.

On 22 November 2023, the District Court has ruled that the tax assessment issued by the Luxembourg VAT authorities toward Mr. “TP,” a director of different companies for the tax year 2019 is void. 

The District Court based its decision on the ruling issued on 21 December 2023 by the Court of Justice of the European Union (CJEU) in its “TP” case (C-288/22).¹ The CJEU stated that a natural person acting as a director of a Luxembourg “société anonyme” (public limited company) does not qualify as a taxable person for VAT because “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.”

After the decision of the CJEU, the Luxembourg VAT authorities informed that they will implement a “non-bureaucratic” procedure allowing the retroactive regularization of VAT paid on director’s remunerations via “MyGuichet.” They also issued a Circular 781-1 suspending, with immediate effect and until the District Court’s decision, Circular 781 of 30 September 2016. The Circular 781 clarified that directors of companies were VAT taxable persons and that, therefore, their remunerations were, in principle, subject to VAT. The VAT authorities also clarified that they voluntarily extend to 2018 the period within which the VAT paid on directors’ remunerations could be regularised instead of 2019.²

After the decision, several critical questions remain unresolved, as outlined below:

• Will the interpretation of the VAT authorities of the decisions be restrictive (sticking to natural persons acting as directors of “société anonyme” “public limited company”) or broad enough to include members of the management body of other companies, such as managers of “société à responsabilité limitée” (“limited liability company”), to quote the most frequent case?
• What about companies acting as director or manager of other companies or providing persons acting as such?
• When will the “MyGuichet” procedure be available?
• How will this procedure work? Which information will have to be provided?
• What happens if a director is deregistered for VAT, has left the country, or has died?
• What happens if the company is deregistered for VAT or has been liquidated?
• Will a new circular be issued ? If yes, when?

Many questions remain unanswered. Concerned persons and companies should already envisage the possible answers and their impact on their respective positions.

We are delighted to invite you to our next webinar about this long-awaited decision of the District Court and its impacts on VAT and Personal Tax. The webinar will take place on Thursday, 12 December 2024 from 11:00 to 11:45 (CET).

Register Now

The Deloitte Luxembourg indirect tax team remains at your disposal to discuss the potential impacts on your organization. 

¹For more details, we refer to our newsletter of 21 December 2023, “VAT: a natural person acting as a director is not a taxable person for VAT.”

²The time limitation period rule foresees that VAT could be regularized within five years from 31 December of the year when the VAT was due or deductible. Thus, regularizations performed in 2024 would concern tax years from 2019 onward. However, the VAT authorities understand that the date of the case, 21 December 2023, makes it impossible to perform regularisations in the very last days of 2023, and that concerned persons “lose” one year of regularisation.