As announced in our previous alerts, the VAT authorities decided to abolish the tolerance that provides that legal entities acting as director of a company do not need to apply VAT on their directors fees. As of 1 June 2016 legal entities acting as directors, administrators or liquidators will thus have to register for VAT purposes and apply VAT on their directors fees unless these legal entities can apply another exception (e.g. the special regime for small enterprises, the VAT exemption for the management of special invest funds, VAT grouping, etc.). The way the fees are calculated will in principle not be relevant (e.g. tantièmes granted after 1 June 2016 will be subject to VAT). Special conditions have been foreseen in order to allow Directors to become part of a VAT group allowing the Directors not to charge VAT (see further). The newly published decision E.T. 127.850 of 30 March 2016 provides detailed guidelines on these new rules. The fees charged by individuals acting as a company director remain outside the scope of VAT.
Hence, legal entities acting as directors should thus apply for a VAT number (via form 604A) before 1 June 2016. Fees will be subject to VAT and in turn the directors will be entitled to deduct VAT borne on their costs and expenses. It should be noted here that VAT authorities do not allow adjustments of VAT incurred on business assets for the past, i.e. before the legal person-director was registered for VAT.
These new rules could have a financial impact if directors fees are charged to an entity which has no or only a limited right to deduct VAT (for example in the medical, financial or insurance sector, holding companies, non-profit organizations and real estate companies) In those cases the VAT charged by the director will in principle become an additional cost.
If no other VAT exemption applies, legal entities acting as director could consider to become part of a VAT group with the company in which they have their mandate if the conditions foreseen in Belgian VAT legislation are fulfilled (e.g. close financial, economic and organizational links between the members of the VAT group). The VAT authorities have now included specific guidelines on the fulfillment of these conditions in the relation between directors and the legal entities in which they hold their mandate.