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Markets and Securities Services |
Luxembourg
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In this circular letter, the VAT Authority confirms
that directors’ fees fall within the scope of
VAT irrespective of whether the director is a
company or a private individual.
When the place of the supply of the services
provided by directors is Luxembourg, the
directors’ fees are normally subject to the
standard VAT rate of 17%.
The circular letter provides exceptions to the
principle of taxation when the director is an
employee representing his employer on the
board
12
and when the director supplies his
or her services in the context of an honorary
activity remunerated by “jetons de presence.”
13
Circular-letter issued by the direct tax authority
14
In February 2017, the direct tax authority
issued a circular-letter as regards the
treatment of “tantièmes” from a direct tax
purposes
15
. This circular letter refers to the
circular letter issued in September 2016 by
the VAT Authority and reminds that directors’
fees fall within the scope of VAT.
This circular letter specifies that when the
“tantièmes” are subject to VAT, the withholding
tax due by the company has to be determined
based on the amount of tantièmes VAT
excluded. It also specifies that when the VAT
on tantièmes is not deductible for the company
from a VAT point of view (in full or partially), the
tantièmes and the non-recoverable VAT are both
not deductible for direct tax purposes.
No reference to the fund management
VAT exemption (Article 44,1,d) of the
Luxembourg VAT Law)
These two circular letters do not confirm that
the application of the fund management VAT
exemption can apply to directors on the boards
of qualifying investment funds (SICAVs, FCPs,
SICARs, AIF, securitisation vehicles, pension
funds) and/or to directors on the boards of
management companies managing these funds.
However, the VAT exemption should not be
challenged to the extent that the directors’
functions are specific and essential to the
management of these funds.
Since the two circulars do not provide clear
criteria or conditions that need to be met
to apply this specific VAT exemption, an ad
hoc working group has been set up with
representatives of two professional associations,
ALFI
16
and ILA
17
. In March 2017, this working
• Promptly provides information and
documents, in the event of questions
from, or an audit being carried out by,
the VAT Authority.
• And checks and has sufficient comfort
on the VAT treatment applicable to output
and input transactions.
We recommend that procedures be put in place
to ensure that the above points are verified
periodically to ensure Luxembourg entities
and funds follow good VAT governance.
VAT on the remuneration of independent
directors of investment funds and of their
management companies
Circular-letter issued by the VAT Authority
9
As a background, the VAT Authority issued a
circular letter on 30 September 2016 with the
aim of clarifying the position for directors and
companies receiving services from directors.
10
The VAT Authority also published answers to
“Frequently Asked Questions”
11
on a dedicated
page of its website.