Change to local interpretation concerning the 'supply' of directors

In terms of article 5 of the VAT Act, the activities of an 'employee' which, by definition includes the 'holder of an office', are not regarded as an economic activity for VAT purposes. In effect, where an individual is appointed to the post of Director of a Company, the fees paid by the company to the Director by way of remuneration for his/her activities or ‘services’ would typically fall outside the scope of Maltese VAT.

Article 5 has historically been interpreted to extend in practice also to scenarios in which the Director's fee/remuneration is not paid directly to the Director, but is instead paid to another company (for example, a corporate services provider) which has 'supplied' the Director for its client. Historically, local practice has been to consider the fees paid to companies who refer Directors to fall outside the scope of Malta VAT, on the basis that the said fees paid constitute remuneration for an activity which is not to be considered to be an economic activity for VAT purposes i.e. that of the ‘holder of an office’.

However, in particular pursuant to the decision of the CJEU in case C-94/19 (San Domenico Vetraria SpA vs Agenzia delle Entrate), it is our understanding that this  interpretation is no longer applied by the local authorities.

We understand that in a scenario such as the above-described, the activity in question, for which a Company is being remunerated for making available to another Company the services of a Director, would in fact constitute an economic activity, which falls within the scope of VAT.

We invite you to read MIT Information Paper 01/20 which analyses the Malta VAT treatment of Directors' fees in some of the varying practical scenarios.