On 20 November 2014, the Belgian VAT authorities issued a key decision relating to the VAT status of company directors. Further to this decision, legal entities serving as company directors can no longer choose whether to apply VAT to their fees. As of 1 January 2015, legal entity directors will be obliged to apply VAT to their invoices and comply with all VAT rules. The same rules will apply to liquidators.
On 23 September 2014, NautaDutilh organised a client seminar on the remuneration of directors and managers, on which occasion case studies were presented, focussing on corporate, tax and social security aspects. A question raised at the time and one we often receive from clients is whether Belgian VAT is due on fees paid to directors and managers.
Situation prior to 1 January 2015
Natural person directors can never charge VAT
In principle, an independent economic agent should charge VAT upon a supply of goods or provision of services. While arguments exist to apply VAT to services rendered by company directors and liquidators, the VAT administration accepted (since 27 January 1994) that directors and liquidators should not be considered independent economic agents when exercising their usual corporate powers. The reasoning was as follows: due to their special relationship with the company, directors and liquidators are not acting independently but rather as organs of the company. Indeed, a director representing the company to third parties cannot be deemed independent (Decision ET 79.581 of 27 January 1994 confirmed by the Belgian finance minister in an answer to a parliamentary question of 23 May 1997; Decision ET 118.288 of 27 April 2010).
In a decision of 5 April 2011, the Ruling Commission confirmed that services performed by a managing director (i.e. a person to whom daily management of the company has been entrusted further to a specific provision in the company's articles of association) are treated the same for VAT purposes as those provided by a regular director.
Consequently, the fees received for these services are not subject to VAT. However, if the director provides other services to the company (i.e. outside the scope of the directorship), VAT should be charged.
Legal entities performing a directorship could choose whether to apply VAT to their services
The Belgian VAT authorities distinguished between natural person and legal entity directors. Natural persons acting as company directors have never been considered taxable persons subject to VAT. Legal entities acting as directors could, however, choose whether to apply VAT to their services.
Situation as from 1 January 2015
In order to comply with a position adopted by the European Commission in 2011, the Belgian VAT authorities had to modify the VAT treatment of legal entity directors: as of 1 January 2015, they will no longer be able to choose whether to apply VAT to their fees. A corporate entity exercising a directorship must henceforth always register as a VAT payer, apply VAT to the services rendered and comply with all VAT filing rules and regulations.
In principle, VAT will be due on services performed as of 1 January 2015. However, if (any part of) the payment for services performed in 2015 is made in 2014, no VAT will be due on this (portion of the) payment. With respect to director profit shares (tantièmes), the question of whether to apply VAT should be answered with reference to the date of the annual general meeting of shareholders. Thus, if the annual general meeting granting the profit share takes place in 2015, VAT will be due.
Companies with legal entity directors on their board will have to pay an additional 21% VAT on their directors' fees. If the company is entitled to a full deduction of input VAT, there will be no additional cost. However, if the company is not entitled to a full deduction of input VAT, an additional cost will arise. For the sake of completeness, please note that this decision does not affect natural person directors, whose activities fall outside the scope of VAT.