Legal entities acting as company directors will become VAT taxable as of 1 June 2016
06 April 2016
The possibility not to apply VAT on the remuneration received by a legal entity in its capacity of administrator, director or liquidator will be abolished as of 1 June 2016. As from this date, a VAT registration will become mandatory for those entities who receive a remuneration for their directors fees. Private individuals who act as a company administrator, director or liquidator remain out of scope of VAT.
On 30 March 2016 the Belgian VAT Authorities issued an Administrative Decision (no. E.T. 127.850) in which they clarify their viewpoint on this matter. The Decision provides guidelines on the envisaged legal entities, the various remunerations falling within the scope of VAT, the place of localisation of services (which is of importance in an international context) and the applicable VAT rate of 21% when Belgium is the place of localisation. By becoming subject to VAT, the legal entities acting as company administrator will also be entitled to the right of deduction of input VAT. However, an historical VAT deduction will not be possible. The moment as from when VAT has to be charged, will depend on the taxable event and the moment on which the VAT becomes due. For example a so-called ‘tantième’ will be subject to VAT depending on the date of the General Assembly which grants this ‘tantième’. If the General Assembly was held on 31 May 2016 at the latest, the ‘tantième’ will be exempt of VAT, regardless when the payment is made or the invoice is issued.
The VAT taxability of legal entities acting as a company administrator will have a financial impact in hands of the ‘administrated’ entities if they have no or only a partial right to deduct the input VAT (e.g. finance and insurance companies, real estate sector, non-profit sector,… etc.). ‘Administrated’ entities, who are entitled to deduct 100% of the input VAT, will encounter a cash flow impact because they have to pre-finance the VAT which is charged to them.
In order to avoid the additional VAT cost, or to neutralize the pre-financing need, further review is required whether or not a VAT group could be established. In the aforementioned Decision the VAT Authorities have introduced less strict conditions to set-up a VAT group. Also the combination of directors fees and other (exempt) remunerations is possible (minimum 25% of the total remuneration is considered as a directors fee in case there is no objective and formal assessment of the different types of remuneration). Furthermore, also the general VAT exemption for small enterprises can be applied if the annual turnover threshold of 25.000 EUR is not surpassed. Of course each individual case needs to be assessed separately based on the actual circumstances.
Should you have any further question or require a personal advice with respect to the impact of these rules on your company, please contact your usual contact person at BDO or you may send an email to [email protected] for the attention of one of the members of the Competence Centre VAT:
- Erwin Boumans, 02/778.01.00
- Pascal Dauw, 09/210.54.10
- Kaatje Bondewel, 02/778.01.00
- Brigitte Braeckmans, 03/230.58.40