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Director’s fees : Final Guidelines of the Luxembourg VAT authorities

Yesterday, the Luxembourg VAT authorities (Administration de l’enregistrement, des domaines et de la TVA) issued a circular N°781-2  (the “Circular”) providing the final guidelines and practical information on the recovery procedure of the VAT unduly paid by a director of a Luxembourg company for the remuneration (tantième) he/it receives, taking into consideration the decision of the Luxembourg district court (Tribunal d’arrondissement) of 22 November 2024 implementing the ruling of the Court of Justice of the European Union of 21 December 2023 (the “Court Decisions”). 

As a reminder, in the Court Decisions, it was ruled that such remuneration was not subject to VAT considering that the activity as a member of a board of directors of a société anonyme under Luxembourg law is not exercised independently for VAT purposes. 

For more background on the case, please refer to our previous newsletters dated 22 December 2023, 13 July 2023 and 25 November 2024.

Please find below the key takeaways of the Circular:

• The consequences of the Court Decisions are not limited to directors of a société anonyme only. Therefore, they could also apply to members of the management board of company with another legal form such as a société à responsabilité or a société en commandite par actions.
• Provided conditions set forth by the Court Decisions are met, all directors/managers currently identified for VAT purposes, whether natural or legal persons may benefit from a regularisation of the VAT invoiced.
• This regularisation can be carried out for years not subject to statute of limitation. Please note that for the year 2018 the VAT authorities choose to waive the statute of limitation. In relation to the year 2019, the VAT authorities have stated that they would waive the ability to statute of limitation provided the regularisation request is submitted before 1st July 2025.
• Regarding the regularisation process:
  • For directors located in Luxembourg 
    - The regularisation is to be made via an ad-hoc procedure that is available on myGuichet until July 2025;
    - It is for the directors/managers concerned to pay the regularised VAT to their respective customers which in turn, must proceed, where applicable, to the regularisation of their deduction right for the years concerned.
    - The directors/managers’ deduction right should not be challenged for simple expenses that were necessary for the exercise of their function. However, large amounts such as investment expenses will systematically be reviewed, giving rise as the case may be, to a regularisation of the VAT unduly deducted.
  • For director not located in Luxembourg for which reverse charge was applied by the Luxembourg entity 
    - the company that has performed the reverse charge in relation to these director fees will need to claim the regularisation in one go in its annual tax return for the years concerned with specific attention to the year 2019.  
• Circular No. 781 of September 30, 2016, which was suspended by circular N°781-1 of 22 December 2023, resumes its effects on the date of issue of the Circular for managers/directors who/which are subject to VAT. The VAT authorities will take into account the fact that the obligations set out in Circular N°781 have been previously suspended.

Three important bills of law in tax field were voted!

Today, three important bills of law in tax field were voted by the Parliament.

The first one (N°8414) introduces certain number of measures aiming at strengthening the purchasing power of households and consolidating the competitiveness of businesses such as:

• The corporate income tax rate reduction with the maximum corporate income tax rate being lowered to 16%, leading to a maximum aggregate income tax rate going from 24.94% to 23.87% (for Luxembourg city);
• The exemption from annual subscription tax for actively managed UCITS ETFs;
• The increase of the exempt amount of the profit-sharing bonus (prime participative);
• The improvement of the inpatriate regime;
• The introduction of a “young employee” premium exemption;
• The personal income tax scale adjustment;
• The introduction of special measures for single parents.

For more information regarding these measures, please refer to our previous newsletter dated 19 July 2024.

The second bill (N°8388) deals with some important tax matters including the new scale of rates for minimum net wealth tax (applicable as from 1st January 2025), the clarification of the legal provision on the repurchase of a class of shares (applicable the day after the law is published in the official gazette) and the optionality of the Luxembourg participation-exemption regime (applicable for the tax year 2025). 

For more information regarding this topic, please refer to our previous newsletter dated 3 June 2024.

The third one (N°8186A) mainly amends the General Tax Law (Abgabenordnung) of 22 May 1931 in order to improve the efficiency of tax processes.

The Parliament requested the exemption from the second vote to the State Council for the three bills which we expect should be granted.