Since its introduction, the value-added tax (VAT) has changed the UAE’s taxation system for individuals and businesses. VAT on director services was one area that initially caused considerable confusion. However, the most recent update from the Federal Tax Authority (FTA) has clarified things. The specifics of Public Clarification VATP037, its ramifications for directors and enterprises, and how to manoeuvre through the new environment are all covered in detail in this article.
This raises the question of whether someone offering directorship services in the UAE must register for VAT or meet other VAT requirements. These queries are addressed in the FTA’s new Public Clarification (VATP037), which also sheds light on the VAT ramifications of directorship services in the United Arab Emirates.
UAE tax professionals urge you to base your decisions on the new Explanation, which supersedes and repeals the prior Public Explanation VATP031.
VAT experts available with VAT registration in the UAE are your partners in saving your VAT expenses and ensuring VAT compliance in your organization. They will help you understand the UAE’s VAT applicator director’s services.
Let’s now take a closer look at the recent FTA VAT Public Clarification:
Pre-2023 Situation: Possible Applicability of VAT on Director’s services
Under some circumstances, director services could be regarded as a taxable supply for VAT purposes before January 2023. If the directors’ fees exceeded the registration level, they might have been required to register for VAT while operating as natural persons. Whether or not the filmmaker was regarded as an “independent director” determined the particular requirements.
Post 2023 situation: what does the updated Explanation provide?
For VAT reasons in the UAE, directorship services rendered by a natural person were considered before January 2023. To amend the clause stated in Cabinet Decision No. 52 of 2017, the UAE enacted Cabinet Decision No. 99 of 2022.
The updated FTA explanation provides instructions on implementing the modified clauses and ascertaining the ensuing VAT duties of the natural persons acting as directors in the United Arab Emirates. You may get more information about directors’ VAT responsibilities from VAT experts in Dubai.
Meeting Requirements to Be Considered Outside of Purview
For VAT purposes, the natural person must fulfil the following requirements to avoid being regarded as a service provider:
Individual Nature
Only when natural persons render directorship services—regardless of whether they reside in the UAE—will the FTA exclude them from VAT.
A legal entity, whether private or public, may designate a natural person to serve as a director in its name, but this regulation does not apply to them.
Board of Directors Requirement
The directorship services rendered as a director on a private company or government agency’s Board of directors are exempt from VAT. Services rendered as a committee member that is a subset of the Board that the Director is a member of are also excluded. Experts offering top-notch VAT advisory services in Dubai can assist you in determining if you fulfil this requirement.
Transitional Guidelines according to the Explanation
Natural persons who meet the requirements outlined in the clarification and offer director services in the United Arab Emirates should assess their tax responsibilities for the period ending on January 1, 2023, as well as any subsequent periods.
Articles 25 and 26 of the Executive Regulation govern the Date of Supply. The regulations outlined in these Articles will determine whether or not the function is performed before or after January 1, 2023.
Deregistration for director services for VAT in the UAE
If board members do not meet the necessary or voluntary standards after the new rules go into effect, they may or may not be required to deregister for VAT reasons. Additionally, beginning January 1, 2023, board members may participate in activities outside the purview of their responsibilities as directors; nevertheless, only those actions performed in their capacity as directors will be exempt from taxes.
How VAT registration in UAE can help you understand if VAT applies to Director services in your business or not in the UAE.
The Director’s fee in the United Arab Emirates is no longer applicable w.e.f. January 1 2023. The directors’ services must be eligible to qualify for VAT exclusion as per the latest laws as of January 1, 2023. This clarification from the FTA sheds light on the requirements that directors’ services must meet to qualify for the VAT exclusion. You may get more help in this area with one of the top VAT advisors in Dubai. VAT registration UAE, a UAE-registered tax agent with FTA approval, is the company that helps businesses become compliant with Tax and VAT laws. For decades, VAT registration has been offered by the UAE and its sister companies, which provide worthy accounting and tax services in Dubai. Call us right now to ensure you satisfy all UAE VAT compliance standards.