Are you a Director, Executive, a Board Member, etc., providing services (“Director’s Services”) for a company in the UAE? If yes, then this is for you.
In a nutshell, the Director’s Services provided to other persons (legal or natural) shall be considered a supply of services and thus, subject to the UAE VAT.
What/Who is not in scope?
Employees who perform services to their employers. These include salaries, bounces, and similar incentives.
What is in scope?
The Director’s Services provided by a Director should be taxable if:
- The Director undertakes services on a regular, ongoing, and independent* basis; and
- The total value of taxable supplies and imports made by the director, including supplies of Director’s Services, exceeds the mandatory registration threshold of AED 375,000 (USD 102,180).
*Independent Basis shall mean that a Director is not simply an employee of the company.
Practical Examples - Place of Supply for Director’s Services
1. I am a Director who is also a resident in the UAE and providing Director’s Services to a UAE entity:
- Then the place of supply is the UAE, and the Director, if meeting the conditions, shall charge VAT at 5%.
2. I am a Director who is also a resident in the UAE and providing Director’s Services to an entity in a GCC Implementing State:
- Then the place of supply is the other GCC Implementing State, and the Director, if meeting the conditions, shall not charge UAE VAT.
3. I am a Director who is also a resident outside the UAE and providing Director’s Services to a UAE entity:
- Then the place of supply is the UAE, and the UAE company shall account for such services as import of services under the Reverse Charge Mechanism.
4. I am a Director who is also a resident in the UAE and providing Director’s Services to an entity outside the GCC Implementing States. The services are provided from the UAE:
- Then the Director, if meeting the conditions, may charge VAT at 0% if:
The company does not have a presence in the UAE, and
The performance of the services is not received in the UAE by any person who would be able to recover the VAT incurred.
5. I am a Director who is also a resident in the UAE, providing Director’s Services to an entity outside the GCC Implementing States. The services are provided physically outside the UAE:
- Then the Director, if meeting the conditions, shall charge VAT at 0%.
6. I am an employee who is also a resident in the UAE, and I got assigned by my current employer to another company to act as a Director in the other company:
- Then the company employing the Director shall charge VAT at 5% to the other company as a normal supply of services. This means that the Director is not required to register for VAT purposes.
7. I am a Director who is a Non- Resident and I provide service to a company in UAE which is not registered with FTA:
- Then the Director must register and take note that there is no threshold in terms of value for Registration (i.e. Even AED 100 fees will make it mandatory for the Director to register with FTA).
Is this a cost?
The VAT charged by Directors on their Directors’ Services to companies shall not be considered as a cost to those companies.
Companies can claim VAT paid to Directors as input VAT in their VAT tax returns.
Directors receiving their fees plus VAT are responsible for remitting VAT collected to the UAE Federal Tax Authority. In addition, record-keeping and bookkeeping are critical for Directors to ensure availability of all supporting documents in case of potential audits in the future.
Other Notes:
1. What if I am a shareholder who is earning management fees? This transaction might be subject to the VAT (subject to the terms and conditions of the agreement)
2. In terms of employees who take salary, are also on the Board, and take the Board of Director’s remuneration for each meeting they attend, the general rule is that Directors provide services for VAT purposes to their company. This means that if the fees for services (in addition to any other supplies that might be made by the person) of these employees (i.e. an owner/partner/director of a company who don’t get salary but get management fees) exceed the VAT mandatory registration, the management fees should be subject to VAT. These employees get salary and fees for services. The services are independent. The services are independent. In such scenario, it is advisable to refer to the applicable rules and regulations in the UAE.
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