Is VAT applicable to director services in the UAE? FTA offers new guidance

The applicability of Value Added Tax (VAT) on director’s services offered by natural persons in the UAE has come to the spotlight again after the Federal Tax Authority (FTA) released new guidance. With effect from January 1st 2023, the directors’ services offered by a natural person for remuneration are not a supply of services as per the UAE VAT regulations.

This raises questions such as whether an individual providing directorship services needs to register for VAT in the UAE or comply with other VAT obligations. The FTA’s new Public Clarification (VATP037) offers answers to such questions and provides insights into the VAT implications of directorship services in the UAE.

The new clarification replaces and repeals the previous Public Clarification VATP031 and tax agents in the UAE advise you to make any decision based on the new clarification. Now, let us further explore the new FTA VAT Public Clarification in detail:

What does the new clarification offer?

Before January 2023, directorship services provided by a natural person were treated as services for UAE VAT purposes. However, the UAE introduced the Cabinet Decision No. 99 of 2022 to change that provision mentioned in the Cabinet Decision No. 52 of 2017.

The new FTA clarification offers guidance on how to apply the amended provisions and determine the resulting VAT obligations of the natural persons providing director’s services in the UAE. VAT consultants in Dubai can provide you with more details on the VAT obligations of directors.

Conditions to Meet to be Treated as Out of Scope

The natural person must meet certain conditions not to be considered as a supply of services for VAT purposes:

Natural Person Condition

The FTA will exclude the directorship services from VAT only when it is performed by natural persons, irrespective of whether the person is a  UAE resident or not.

However, this rule does not apply to a legal person, whether private or public, who may delegate in its own name a natural person to act as a Director.

Board of Directors Condition

The exclusion from VAT will apply to the directorship services performed as a Director on a Board of Directors of a government entity or a private establishment. This exclusion extends to services performed as a member of a committee derived from the same Board on which the Director serves. Providers of the best VAT consulting services in Dubai can help you assess whether you meet this condition.

Transitional Rules as per the Clarification

Natural persons who provide directors’ services in the UAE and meet the conditions stipulated in the clarification should review their tax obligations for the period both prior to and from January 1st 2023.

The Date of Supply is governed by Articles 252 and 263 of the Executive Regulation. The rules laid down in these Articles will determine whether the performance of the function is deemed to take place before or from January 1st 2023.

Hire the Services of the Best VAT Consultants in Dubai, UAE

Director’s fees are no longer taxable in the UAE effective from January 1st 2023. The FTA’s clarification in this regard offers more clarity into the conditions that make directors’ services eligible for the VAT exclusion. The best VAT advisers in Dubai such as Tax Gian can assist you further in this regard.

Tax Gian is a brand of Jitendra Tax Consultants (JTC), which is a registered tax agent in the UAE approved by the FTA. JTC and its associate Jitendra Chartered Accountants (JCA) have been providing reliable accounting and tax services in Dubai for more than two decades. Call us today to ensure meet all the VAT compliance requirements in the UAE.