UAE VAT Update — Clarification on Natural person Performing the Function of Director on a Board of Directors
The Federal Tax Authority (FTA) recently published a Public Clarification VATP031 on the treatment of the services of a member of a Board of Directors (hereafter referred to as “Director”).
Effective from 1st January 2023, the provision of the Director’s services is no longer considered a “supply of services for VAT purposes” if the following conditions are met:
- Services are provided by a natural person; and
- Person is appointed as a Director on a Board of any government entity or private sector establishment.
The above exception is reflected in the new provision under Article 3 – “Supply of Services” of the Executive Regulations of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT).
Prior to 1st January 2023, the general rule was that services provided by Directors (whether the service was performed by a natural or legal person) were considered a supply of services for VAT purposes.
The Public Clarification further elaborated:
- The amendment does not extend to a legal person, whether private or public, who may delegate in its own name a natural person to function as a director.
- The services performed by the Director who is not a resident of the UAE will also be excluded from the meaning of “supply of services for UAE VAT purposes.” Therefore, there will be no application of the reverse charge mechanism or need for the natural person to register in the UAE for VAT purposes.
- Only services performed in the legal capacity as a Director on a Board of Directors of a government entity or a private establishment can be excluded from the meaning of “supply of services for UAE VAT purposes.” Other services or activities of the member are still considered to be within the meaning of “supplies of services for VAT purposes” and will be taxable subject to conditions under the VAT Law. E.g, free-lance services, lease of commercial space, and supplies through sole establishments.
- Activities similar to that of Directors conducted by a natural person not part of a Board of Directors will not be covered under the update
Director – Tax
Assistant Tax Manager