UAE VAT Update: FTA publishes guide on Director’s Services
The UAE Federal Tax Authority recently published a guide on ‘Director’s Services’.
The guide throws light on the VAT treatment of director services including the reasons why Directors’ services are subject to VAT, place of supply rules, value of the taxable supply, conditions for recovery of input VAT, VAT implications for special scenarios (director providing services overseas, director services to overseas company, business supplied directors, etc.), applicable VAT rate (i.e. 5% or 0%).
In summary, persons who provide director’s services on a regular and independent basis come under the ambit of UAE VAT, subject to place of supply rules, if the fees for the services in addition to other supplies exceeds the registration threshold limit of AED 375,000 for a resident person. The threshold limit is not applicable for non-residents and such non-residents providing director services to UAE company may trigger a registration requirement, if the VAT is not accounted for by the UAE company.
The services provided overseas or to an overseas company will be zero-rated and in other scenarios, it will be taxed at 5%.
The exception where the UAE VAT will not trigger is where employees acting as directors perform services for their employer.
The value of taxable supply would include monetary compensation (e.g. director sitting fees, bonuses, etc.) and non-monetary compensation (e.g. stock options, free accommodation, recharge of goods and services, etc.).
Given the stringent penal implications under the law, it is important for the senior business personnel to evaluate the VAT registration requirement and impact of VAT on the services provided by them as a ‘Director’ of the Company and act accordingly.
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