Following the CJEU ruling and the subsequent judgment of the Luxembourg district tribunal on 22 November 2024 (the “TP case”), the VAT Authorities set out the practical impact in circular No 781-2 dated 11 December 2024 (the “Circular”). 

A director not acting independently does not qualify as a VAT taxable person

Services supplied by a director for consideration and on a regular basis, qualify as economic activities. Such services do not fall in the scope of VAT, however, if the director is not exercising them in an independent manner.

A director does not act in an independent manner if the director does not act in this capacity under his or her own responsibility, and does not bear economic risk associated with this economic activity. In such cases a director does not qualify as a taxable person for VAT purposes.

Practical guidance

In the Circular the VAT Authorities state that there is no general rule on whether a director acts independently, and that each director is responsible for determining whether this is the case. In the TP case, the Luxembourg district tribunal had determined that the director in the case at hand, given the criteria set by the CJEU, was not acting under his responsibility and not bearing the economic risk of his activity, and hence did not act independently. 

For directors that never should have qualified as VAT taxable persons, regularizations for the past should be done as follows:

Directors based in Luxembourg

A single regularization process is opened through myguichet for a one-shot regularization, to be filed by the end of June 2025. Upon refund the relevant director then may repay unduly charged VAT to the relevant companies. 

Input VAT deduction right for “simple” expenses of the director necessary for the exercise of the director services should not be challenged. However, important amounts such as investment expenditure would routinely be subject to an analysis as regards their deductibility.   

Directors not based in Luxembourg

For non-Luxembourg based directors, as they were not registered in Luxembourg and did not charge VAT on their supplies, the regularization is to be done by the relevant company for which they acted as director. 

Action points

Directors must assess whether or not they acted independently based on factual circumstances. Based on the outcome, regularization must be done in the first part of 2025. In case of non-Luxembourg based directors assessing they were not acting in an independent manner, the companies for which they acted in this capacity  need to regularize in one shot in the annual VAT return to be filed within the earliest legal deadline. No statute of limitation applies to the years 2018 and 2019. 

For questions on the topic, our VAT team as well as your trusted adviser at Loyens & Loeff Luxembourg are at your disposal.