How are VAT taxes applied to services provided by individual CEO advisors to commercial companies?

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Devesa Lawyers > Blog

Carmen Girón

Economist

Undoubtedly, the VAT taxation of services provided by individual Chief Executive Officers to commercial companies is one of the most controversial issues faced by companies and entrepreneurs on a daily basis, and as such, it generates significant interest.

For years, the uncertainty about the correct way to issue an invoice for services provided by a Chief Executive Officer to their company, for VAT purposes, has troubled entrepreneurs and tax advisors due to the differing criteria adopted by the courts and the Tax Administration.

However, it was the recent ruling by the Court of Justice of the European Union on 21 December 2023, case C-288/22 (ECLI:EU:C:2023:1024), and the statement by the Directorate General of Taxes in its Binding Consultation (V0782-24) of 17 April 2024 that have shed light on this issue.

According to this latest criterion, services provided by an individual director or Chief Executive Officer to a company would not be subject to VAT.

Throughout this post, we will explore the requirements that must be met to reach this conclusion and the tax implications that would arise for Chief Executive Officers in these circumstances.

What determines whether an invoice issued by a Chief Executive Officer is subject to VAT?

The key points that will determine whether an invoice issued for services provided by a Chief Executive Officer or director to a commercial company is subject to VAT are as follows:

The nature of the service provided,
The responsibility of the shareholder Chief Executive Officer towards third parties as a result of the service provided,
Whether the Chief Executive Officer bears the economic and business risk associated with the performance of those activities.

What type of services can an individual Chief Executive Officer provide to a commercial company?

The nature of the service provided by a Chief Executive Officer to their company can be:

Services provided by the individual as a director or administrator
Services provided by the individual of a professional nature.

In this regard, and to clarify the controversy raised on this matter, the Tax Authorities respond to this issue in the previously mentioned resolution, distinguishing the VAT applicability of these services based on whether they are provided in the capacity of a director or in a professional capacity.

Services provided as a director of the company:

In cases where the individual Chief Executive Officer only provides services to their commercial company that are solely and exclusively derived from their duties as a director, such services will not be subject to VAT, provided the following requirements are met:

The Chief Executive Officer does not carry out their activity independently,
The Chief Executive Officer does not bear the business, financial, or economic risk that may arise from the performance of this activity.
The company itself will be responsible for the decisions made in the Board of Directors and any consequences that may arise from them.
The Chief Executive Officer does not act on their own and under their own responsibility.

Services provided by the director in a professional capacity and always related to the corporate purpose of the company:

This would be the case where a Chief Executive Officer, in addition to performing their duties as such, also carries out functions related to the company’s corporate purpose, such as financial director, technical director, human resources director, etc.

Therefore, if the means of production are vested in the company and not in the actual provision of services carried out by the Chief Executive Officer, it will be understood that these services result from an employment relationship and, as such, would not be subject to VAT. This is because, as in the previous case, it is the company that assumes any responsibility and risk towards third parties.

For these services to be exempt from VAT, it is also necessary that the financial compensation received by the Chief Executive Officer is not quantitatively significant and, therefore, not linked to the economic results of the company’s activity.

Consequently, if the Chief Executive Officer (CEO) provides services solely and exclusively related to their role as a director, or even if they also provide services related to the company’s corporate purpose, but it is the CEO who assumes the responsibility and economic and business risk of these activities, the provision of services will be subject to VAT, specifically at the tax rate of 21%.

Do you need advice? Access our area related to VAT taxation of services provided by Chief Executive Officers (CEOs) or directors:

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