A Luxembourg holding that only owns shares is not a VAT taxable person and cannot recover VAT on its costs. One that provides real services for a fee to its subsidiaries is, charges 17% on those fees and deducts VAT on its costs, including acquisition costs, subject to apportionment for exempt or passive activity. A VAT group can remove VAT inside a group with exempt activity. Since the CJEU judgment in TP (C-288/22) and AED Circular 781-2, directors who act for the board and bear no economic risk charge no VAT, and past years can be corrected.
VAT for a company that only owns companies
A Luxembourg holding company, the SOPARFI, is usually discussed in terms of corporate tax. VAT gets less attention, because a holding sells nothing. That is the trap. A holding pays VAT on lawyers, auditors, banks, domiciliation and deal advisers, and whether it can get any of that back depends on a single question: does it carry on an economic activity?
A holding that only owns shares and collects dividends is not a taxable person. It cannot register in the normal way and cannot deduct input VAT. Every euro of VAT on its costs is a cost. A holding that actively manages its subsidiaries and charges them for it is a taxable person. It registers, charges 17% VAT on its fees and recovers the VAT on its costs, often in full.
Between the two poles lie the costly cases: mixed activity, failed deals, share sales and directors' fees, which carried VAT until a CJEU judgment of December 2023. This note covers each, with three examples and a checker. The annual filing calendar is in our note on the SOPARFI compliance calendar.
17%
Applies to management fees and most services.
No deduction
Dividends are not consideration for a supply.
Outside VAT
After C-288/22, if not independent.
Since 31 July 2018
Article 60ter, all-in, joint liability.
When a holding becomes a taxable person
The starting point is the definition of a taxable person: anyone who independently carries out an economic activity, whatever its purpose or results. Holding shares is not an economic activity in itself. The CJEU said so in Polysar (C-60/90, 1991): the mere acquisition and holding of shares, and the receipt of dividends, does not make a company a taxable person, because dividends are a return on ownership, not consideration for a supply.
The position changes when the holding becomes involved in the management of its subsidiaries. In Cibo Participations (C-16/00, 2001) the Court held that such involvement is an economic activity where it involves transactions subject to VAT, such as the supply of administrative, financial, commercial and technical services. The holding must render services for consideration; board seats, voting and free advice are not enough.
Larentia + Minerva (joined cases C-108/14 and C-109/14, 2015) confirmed that a holding involved in the management of its subsidiaries through taxable services is a taxable person, and that costs of acquiring those participations are general costs of its economic activity. Marle Participations (C-320/17, 2018) added that letting a building to a subsidiary is also a taxable service that can make the holding active, provided it is a real economic activity carried on for consideration, not a token arrangement.
| Situation | Taxable person? | VAT consequence |
|---|---|---|
| Holds shares, receives dividends and gains only | No | No registration as a taxable person; no deduction |
| Charges management, accounting or IT fees to subsidiaries | Yes, for that activity | Registration; 17% VAT on fees; deduction of related input VAT |
| Lets a building to a subsidiary for rent | Yes | Letting is exempt unless the option to tax is available and exercised |
| Grants interest-bearing loans to subsidiaries | Yes, but exempt activity | Interest is exempt; it restricts deduction through the pro rata |
| Active in some subsidiaries, passive in others | Partly | Input VAT apportioned between economic and non-economic activity |
Registration. A taxable person established in Luxembourg must register with the VAT authority, the Administration de l'enregistrement, des domaines et de la TVA (AED). Since 2025 the small business exemption lets businesses with annual turnover up to EUR 50,000 skip charging VAT, but a holding in the exemption cannot deduct input VAT either, so an active holding with real costs usually prefers full registration. Our note on VAT registration in Luxembourg covers the procedure.
The passive holding still meets VAT. A non-taxable holding that buys advice from abroad self-assesses 17% Luxembourg VAT under the reverse charge, using a VAT number issued under a simplified registration, and cannot deduct it.
Law and practice: Council Directive 2006/112/EC, Article 9 (taxable person); Law of 12 February 1979 on VAT (LTVA), Article 4 (taxable person), Article 57 (small business exemption, EUR 50,000 since 2025); CJEU C-60/90 Polysar, 20 June 1991; C-16/00 Cibo Participations, 27 September 2001; C-108/14 and C-109/14 Larentia + Minerva, 16 July 2015; C-320/17 Marle Participations, 5 July 2018.
What a holding can deduct
A taxable holding deducts input VAT on costs that have a direct and immediate link with its taxable supplies, or that are general costs of its economic activity as a whole. Costs linked to exempt supplies, such as interest on loans, or to non-economic activity, such as passively held shares, are not deductible.
Acquisition costs. Under Cibo and Larentia + Minerva, the costs of acquiring a subsidiary, including due diligence, legal, tax and financing advice, are general costs of a holding that intends to provide taxable services to that subsidiary. If the holding provides such services to all its subsidiaries, VAT on those costs is deductible in full, subject to any exempt activity. If it manages only some, the costs are apportioned. The Court left the method to member states, provided it reflects objectively the share of the costs attributable to each activity.
Failed deals. In Ryanair (C-249/17, 2018) the Court held that a company that incurred advisory costs on a takeover bid it intended to follow with taxable management services could deduct the VAT, even though the bid failed. Intention must be evidenced at the time, by a board resolution or a draft services agreement.
Selling a subsidiary. A share sale by an active holding is generally an exempt financial transaction or outside the scope. In SKF (C-29/08, 2009) the Court accepted that VAT on deal costs of a sale can still be deductible as general costs if the costs are not built into the price of the shares and the holding's overall activity is taxable. Where costs are directly linked to the exempt sale itself, they are not deductible. Raising equity is different: in Kretztechnik (C-465/03, 2005) the issue of new shares was held not to be a supply at all, so costs of a capital increase are general costs of the issuing company.
The limit. In Finanzamt R (C-98/21, 2022) a holding could not deduct VAT on services it passed to its subsidiaries for a profit share: the costs served their largely exempt business, not its own taxable fees.
Apportionment. A holding with mixed activity works in two steps. First it separates economic from non-economic activity, usually by participations or time spent, and excludes the non-economic share. Then, within its economic activity, it applies the pro rata of taxable turnover to total turnover, so that exempt interest income reduces the deduction. Dividends are not turnover and stay out of the fraction. BLC Baumarkt (C-511/10, 2012) allows a more precise key than turnover where it is more accurate.
Law and practice: LTVA, Articles 48 and following (right to deduct, pro rata and actual use); Directive 2006/112/EC, Articles 168, 173 to 175; CJEU C-465/03 Kretztechnik, 26 May 2005; C-29/08 SKF, 29 October 2009; C-511/10 BLC Baumarkt, 8 November 2012; C-249/17 Ryanair, 17 October 2018; C-98/21 Finanzamt R, 8 September 2022.
Charging and buying services inside the group
Fees charged by the holding. When a Luxembourg holding invoices its Luxembourg subsidiaries for management, accounting, treasury support, IT or strategy, it charges 17% VAT. A fully taxable subsidiary deducts it, so the VAT is neutral except for cash flow. When the subsidiary is abroad and a business, the place of supply is where the customer is established. The holding invoices without Luxembourg VAT, quotes the customer's VAT number and reports the service in its recapitulative statement. The subsidiary self-assesses under the reverse charge in its own country.
Pricing. The fee must be at arm's length for corporate tax. Cost plus a mark-up is usual for routine services; the transfer pricing note explains the method and the documentation. For VAT the agreed fee is the taxable amount, but between connected parties the AED can use open market value where the customer cannot deduct in full. A token fee invites both problems.
Services received from abroad. Most cross-border business services follow the general rule: they are taxed where the customer is established. A Luxembourg holding that buys advice from a London law firm or a Paris investment bank self-assesses 17% VAT under the reverse charge. An active holding deducts it in the same return, subject to its pro rata.
Exempt services. Several services that holdings and their groups provide are exempt without the right to deduct. The management of specified investment funds, including UCITS, SIFs, RAIFs and alternative investment funds managed by an authorised manager, is exempt under Article 44(1)(d) LTVA. Granting credit and negotiating it are exempt. A holding that acts as fund manager or as group lender therefore has mixed activity. Our notes on the RAIF, SIF and SCSp and on the securitisation vehicle set out the scope of these exemptions.
| Flow | Who pays the VAT | Rate in Luxembourg |
|---|---|---|
| Holding to Luxembourg subsidiary | Holding charges VAT on invoice | 17% |
| Holding to EU or non-EU subsidiary | Customer, under its local reverse charge | Outside Luxembourg VAT |
| Foreign adviser to Luxembourg holding | Holding self-assesses | 17% |
| Fund management to a qualifying fund | Exempt | No VAT, no deduction |
| Interest on intra-group loans | Exempt | No VAT, reduces pro rata |
Law and practice: LTVA, Article 17(1) (place of supply of services, general B2B rule), the reverse charge provisions, Article 44(1)(c) and (d) (credit and fund management exemptions), the rules on the taxable amount, including open market value between connected persons; Directive 2006/112/EC, Articles 44, 135(1)(b) and (g), 196.
Two ways to remove VAT inside a group
The VAT group. Since 31 July 2018 Luxembourg has a VAT group regime, introduced by the Law of 6 August 2018 as Article 60ter LTVA. Members are treated as a single taxable person. Supplies between them fall outside VAT, and the group files one return through a representative. Members must be legal persons established in Luxembourg, bound by financial, economic and organisational links at once. The financial link, broadly control of more than 50%, is certified by an auditor or chartered accountant.
The regime is demanding. It is all-in: if the group is formed, every person meeting the conditions must join, and a member can stay out only where that brings no VAT saving and it is not in the economic circuit of the group. Members are jointly liable for the group's VAT, interest and fines arising during their membership. Membership lasts at least two calendar years. A legal person can belong to only one VAT group, and the regime cannot be combined with the small business exemption. A new company must be declared within 15 days of meeting the conditions.
Who gains. Groups with exempt activity, such as fund managers, banks and insurers, that buy services internally. A fully taxable group gains little but cash flow.
The cost-sharing exemption. The older route was the independent group of persons (IGP) under Article 44(1)(y) LTVA: members pool costs in a separate entity that recharges them without VAT. On 4 May 2017 the CJEU found Luxembourg's version too broad (C-274/15). On 21 September 2017, in DNB Banka (C-326/15) and Aviva (C-605/15), it held that the exemption covers only groups whose members carry on activities in the public interest, such as health and education, and does not apply to financial or insurance services. For holdings, funds and banks the IGP is no longer available; the VAT group replaced it.
Law and practice: LTVA, Article 60ter (VAT group), inserted by the Law of 6 August 2018, in force 31 July 2018; Article 44(1)(y) (independent groups of persons); Directive 2006/112/EC, Articles 11 and 132(1)(f); CJEU C-274/15 Commission v Luxembourg, 4 May 2017; C-326/15 DNB Banka and C-605/15 Aviva, 21 September 2017; guichet.lu, VAT group.
VAT on directors after the TP judgment
From 2017 the AED treated independent directors of Luxembourg companies as taxable persons, under Circular 781 of 20 September 2016. They charged 17% VAT, a pure cost for funds, securitisation vehicles and passive holdings.
On 21 December 2023, in TP (C-288/22), the CJEU held that a member of the board of directors of a Luxembourg SA was not carrying on an economic activity independently. He acted on behalf of and under the responsibility of the board, did not act in his own name, and bore no economic risk, since his remuneration was fixed and did not depend on his own performance. He was therefore not a taxable person for that role.
The AED reacted twice. Circular 781-1 of 22 December 2023 suspended the 2016 position. After the Luxembourg District Court applied the judgment on 22 November 2024, Circular 781-2 of 11 December 2024 set the practice. A director who does not act in his own name, on his own account and under his own responsibility, and does not bear the economic risk of the role, is not a taxable person for it. This applies to directors of SAs and of other forms such as SARLs, and to directors who are natural or legal persons. There is no blanket rule: each director assesses his own position.
- Local directors. He stops charging VAT and deregisters unless he has other taxable activity. Past years not time-barred are regularised online on MyGuichet.lu.
- Limitation. The ordinary limitation period is five years from the end of the year. The AED waived it for 2018 and 2019, provided requests were filed before 1 July 2025.
- Non-resident directors. The Luxembourg company self-assessed VAT under the reverse charge. The company corrects it in its next annual VAT return; the director usually has nothing to do.
- The director's own costs. The AED will not challenge local directors' deductions on ordinary expenses; large ones, such as capital goods, may be reviewed.
- The company's side. A company that deducted the VAT on directors' invoices loses that deduction when the invoices are corrected; one that could not deduct it may claim the VAT back from the director. That is a civil matter.
What may remain taxable. Since the test is factual, some directors will still charge VAT: a professional firm that bears the economic risk of its directorship business, acts in its own name and is paid on terms it negotiates like any other service, or a director who also provides separate advisory or management services. Income tax and withholding on directors' fees are not affected. Our note on the foreign director of a Luxembourg company covers that side.
Law and practice: CJEU C-288/22 TP, 21 December 2023; AED Circular 781 of 20 September 2016, Circular 781-1 of 22 December 2023 and Circular 781-2 of 11 December 2024; Luxembourg District Court, 22 November 2024; LTVA, Article 4 and the limitation rules.
Three holdings in numbers
A Luxembourg SARL buys a Belgian manufacturing company. Luxembourg advisers bill EUR 400,000 for due diligence, legal and tax work, plus 17% VAT of EUR 68,000. If the SARL only holds the shares and collects dividends, it is not a taxable person and the EUR 68,000 is a cost. If, before signing, its board resolves to provide management services to the target and from closing it invoices EUR 250,000 a year for them, the SARL is a taxable person and the EUR 68,000 is a general cost of its economic activity: deductible in full if it has no exempt or non-economic activity. If it also lends EUR 5 million to the target and earns EUR 200,000 of exempt interest, the pro rata is 250 / 450 = 56% rounded, and it deducts about EUR 38,000. Had the bid failed, Ryanair would still support deduction.
A Luxembourg holding employs four people and charges EUR 600,000 a year to three subsidiaries, EUR 200,000 each. Subsidiary 1 is a Luxembourg trading company: the holding charges EUR 34,000 VAT, which the subsidiary deducts in full. Subsidiary 2 is in Germany: the invoice carries no Luxembourg VAT and the German company reverse-charges 19%. Subsidiary 3 is a Luxembourg fund manager making exempt supplies with 10% recovery: of the EUR 34,000 VAT charged to it, EUR 30,600 is a cost. The holding's own costs carry EUR 51,000 of input VAT, deductible in full since its outputs are all taxable or would be taxable in Luxembourg. A VAT group with the Luxembourg subsidiaries would remove that cost, at the price of joint liability.
An individual living in Luxembourg sits on the boards of two SOPARFIs and a securitisation company for EUR 60,000 a year in total. Before 2024 she charged EUR 10,200 of VAT. None of the companies could deduct it. After C-288/22 she attends the boards, votes with her colleagues and is paid a fixed fee: she is not a taxable person. From 2024 she invoices EUR 60,000 with no VAT and deregisters. For past years not time-barred she files a regularisation on MyGuichet.lu, repays the VAT received to the companies as the agreements require, and the AED refunds what she paid over.
Law and practice: Figures are assumptions for illustration. Rates: Luxembourg 17%, Germany 19%. The pro rata is rounded up to the next whole percentage, as Article 175 of the VAT Directive provides; check the current AED practice for your case.
Check your holding's VAT position
Simplified: a Luxembourg-established holding, rules as of October 2026. The estimate is a starting point for a review, not a VAT return.
Holding VAT check
Describe the holding. You see whether it is a taxable person, whether it needs a VAT number, an estimate of the input VAT it can recover, how directors' fees are treated after the TP judgment, and the points to fix.
A passive holding is not a taxable person.
Real services for a real fee, at arm's length.
Deductible if management services are planned and delivered.
Outside VAT after C-288/22 if not independent.
VAT for Luxembourg holding companies: frequent questions
Is a Luxembourg SOPARFI subject to VAT?
Only if it carries on an economic activity. A holding that merely owns shares and receives dividends is not a taxable person, following the CJEU in Polysar. Once it supplies services for a fee to its subsidiaries, it is a taxable person and must register.
Can a holding recover VAT on the costs of buying a company?
Yes, if it acquires the shares in order to provide taxable services to the target and does so. They are general costs of its economic activity (Larentia + Minerva). A passive holding recovers nothing; mixed activity means apportionment.
Do management fees between group companies bear VAT?
Yes. Services that a Luxembourg holding invoices to its subsidiaries are generally taxable at 17%. Subsidiaries abroad reverse-charge it. Qualifying fund management is exempt.
Are directors' fees still subject to VAT in Luxembourg?
After the CJEU judgment in TP (C-288/22) of 21 December 2023 and Circular 781-2 of 11 December 2024, a director who does not act in his own name, on his own account and under his own responsibility, and does not bear the economic risk of the role, is not a taxable person for that role. Each director assesses this himself.
Can a director get back VAT charged in past years?
Through the regularisation procedure on MyGuichet.lu for years not time-barred. The AED waived limitation for 2018 and 2019 if the request was filed before 1 July 2025. For non-resident directors the Luxembourg company that self-assessed VAT under the reverse charge corrects it in its annual VAT return.
Should every Luxembourg group form a VAT group?
No. A VAT group removes VAT on supplies between members, which helps groups with exempt activity such as fund managers or banks. But it is all-in, with joint liability and a two-year minimum; fully taxable groups gain little.