An amendment to the VAT Act which is scheduled to come into force as of January 2019 redraws the circle of tax subjects and of the definition of economic activity, with consequences for (among others) managing directors as private individuals: “economic activity” is one of the key criteria for determining whether someone is obliged to become a VAT payer.
According to the current wording of the VAT Act, managing directors aren’t (with respect to their performance as corporate officers) VAT subjects, because the activities of someone whose income is taxed as if it were income from dependent work do not qualify as economic activity. However, according to a judgment by the Supreme Adminsitrative Court, this interpretation does not conform to European law and the performance of managing directors must indeed be considered economic activity.
Unless and until the amended VAT Act comes into force, those affected by the above-mentioned SAC judgment (Case No.: 2 Afs 100/2016) may decide whether to submit to the direct enforceability of the relevant EU Directive under which the performance as managing director is an economic activity, or whether they wish to proceed in accordance with the current wording of the VAT Act.
However, under the new rules, an employee or other person who performs economic activities arising from a labor-law relationship, employment with the government, or similar relationship, does not qualify as a tax subject (VAT subject).
To sum it up, managing directors will have to monitor their revenues and, once they cross the statutory threshold, register for VAT and file VAT returns and invoice-matching reports. They will issue tax vouchers and charge, withhold and pay 21 % VAT on their remuneration. On the plus side, they will be able to deduct the input tax on relevant purchases of goods and services.
It is a rather astonishing thought to consider that these individuals will in the future pay wage tax like an employee, but also apply VAT like an entrepreneur.
Source: Amendment to the VAT Act