Amended VAT treatment for director services

The director services provided by the natural person or by the legal person on or before December 31, 2022, where its fee was fixed/determined with effect from January 1, 2022, will be considered a supply of services for VAT purposes even if the invoice will be issued or payment will be made after December 31, 2022



Clause 7(3) has been added to the revised VAT law. The addition defines that any other supply specified in this VAT regulations shall not be considered a supply. — File photo
Clause 7(3) has been added to the revised VAT law. The addition defines that any other supply specified in this VAT regulations shall not be considered a supply. — File photo

By Mahar Afzal/Compliance Corner

Published: Sun 4 Dec 2022, 5:09 PM

Last updated: Sun 4 Dec 2022, 7:47 PM

On September 26, 2022, the UAE President, His Highness Sheikh Mohamed bin Zayed Al Nahyan, issued the Federal Decree-Law No.18 of 2022, amending a few provisions of the Federal Decree-Law No. 8 of 2017 on value-added tax (VAT). The executive regulation related to this VAT law was issued on October 21, 2022 through Cabinet Decision No. 99 of 2022. The amendments will take effect from January 1, 2023.

Clause 7(3) has been added to the revised VAT law. The addition defines that any other supply specified in this VAT regulations shall not be considered a supply.

In the revised VAT regulations, clause 2 has been added in article 3, which states that “As an exception to Clause 1 of this Article, the functions of a member of a board of directors, performed by a natural person appointed as such, for any government entity or private sector establishment, shall not be considered a supply of Services”, and clause 1 of the same article defines that every supply that is not a supply of goods will be considered a supply of services.

From the above addition, it is evident that if the natural person has been appointed as a member of the board of directors of any government entity or private establishment, the services provided by such board members will not be considered supply for VAT purposes. However, if a legal person is providing the director services and meeting the registration threshold, it will not be out of the scope of VAT. Moreover, if a natural person provides the director services without being formally appointed as a board member (freelance director services by the natural person), the freelance services provided by the natural person will continue to be subject to tax.

The legal person providing the director services means that a legal entity is hiring people and outsourcing their services, or an individual is setting up a sole establishment, and he/she is providing the director services from the company platform.

As mentioned above, the above amendments will be effective from January 1, 2023, so the transitional rules will be applicable under articles 25 and 26 of the VAT law.

The director services provided by the natural person or by the legal person on or before December 31, 2022, where its fee was fixed/determined with effect from January 1, 2022, will be considered a supply of services for VAT purposes even if the invoice will be issued or payment will be made after December 31, 2022. However, if the fee will be fixed or determined in 2023 for services provided in 2022, then it will be out of the scope of UAE law if the invoice has not been issued or payment has not been made in 2022. Any payment made or invoice issued in 2022; will be subject to tax in 2022.

Where the formally appointed board member is a natural person, and he/she is providing continuous services having periodic payments or consecutive invoices, then the date of the supply of such services will be earlier of these dates: (i) date of issuance of any tax invoice, (jj) date payment is due as specified on the tax invoice. (iii) date of receipt of payment, and (iv) date of expiration of one year from the date services were provided. If any of these dates are following in 2022, then director services will be in the scope of VAT subject to the condition that director fee is fixed or determined as of January 1, 2022. Otherwise, it will be out of the scope of VAT.

Natural persons performing the function(s) of a director on a board of directors, as defined above, must review their tax obligations for the period both before and from January 1, 2023. Moreover, such people must know the status of their VAT registration. The natural persons who have a director services fee as their only source of income in 2022, and it will not be taxable in 2023, then they need to get themselves deregistered for VAT purposes to avoid penalties. The abovementioned individuals who have other sources of income, like rental income from commercial properties, income from sole establishments etc., along with director services fees, need to consider the value of their total supplies to assess their status of VAT registration.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official but a personal opinion of the writer based on the public consultation document on corporate tax. For any queries/clarifications, please write to him at compliance@kresscooper.com


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