VAT circular number 781 of 30 September clarifies that a director’s activity shall be considered as an economic services activity subject to VAT. This situation, unclear before 30 September, has been confirmed and clarified by the Luxembourg VAT authority.

There are, however, exemptions and situations out of the scope of the circular : 

  • employees nominated as directors to represent their employers are not subject to VAT (such activity is not considered as an independent economic activity);
  • honorary activities by members of public organisations, professional chambers, boards of managers and similar corporate bodies are exempt from VAT if remunerated by attendance fees; and
  • the small entreprises scheme applies.

Despite the legislation clarification, at least one issue remains: if a director’s remuneration is subject to VAT because it is considered as a services activity, this would normally entitle the paying company to deduct this cost. What is the solution for listed companies that usually cannot, or can only partially, deduct VAT?

Will certain situations be resolved in the following months? Will there be a race for VAT registration before the end of the year? The months ahead seem uncertain, but the additional source of income for the VAT authority in light of the aforementioned circular, which will enter into force on 1 January, seems more than certain.