VAT Public Clarification VATP037: Directors’ Services by Natural Persons

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VAT on Directors
Introduction:
VATP037 replaces the previous VATP031 to provide guidance on the VAT implications for natural persons performing the function of a Director on a Board of Directors, following the amendment of Article 3 of the Cabinet Decision No. 52 of 2017.
Key Issue:
Article 3(2) of the amended Executive Regulation, effective from January 1, 2023, states that the functions of a member of a Board of Directors (Director) performed by a natural person shall not be considered a supply of services for VAT purposes.
Summary:
From January 1, 2023, Directors’ services by natural persons for remuneration are not considered a supply of services for VAT. Previously, these services were taxable if provided regularly, ongoingly, and independently, and if the total value of taxable supplies exceeded the mandatory registration threshold.

Detailed Analysis:

General Conditions:
For Directors’ services not to be considered as a supply of services:
  • Services must be provided by a natural person.
  • The person must be appointed as a Director on a Board of any government entity or private establishment.
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Natural Person:
Only services by natural persons are excluded. This exclusion does not extend to legal persons who delegate a natural person to act as Director.
Board of Directors:
The exclusion applies to services performed as a Director on a Board, including any committees derived from the Board. Other services provided by the member are considered taxable supplies.
Capacity as Director:
Only services performed in the formal capacity as Director are excluded. Freelance services by non-Directors are taxable.
Non-Resident Directors:
Services by non-resident Directors are also excluded from VAT, with no need for reverse charge mechanism or VAT registration in the UAE.
Transitional Rules:
Directors must review tax obligations for periods before and after January 1, 2023, governed by Articles 25 and 26 of the Executive Regulation.
Examples for Guidance:
  1. Services for 2022 Without Payment:
    • Date of supply is when services were completed in 2022, taxable under UAE VAT regardless of payment timing.
  2. Two-Year Appointment with Periodic Payments:
    • Payments received in 2022 are taxable. Payments from January 2023 onwards are not taxable under the new provision.
  3. Fees Determined Post-2022:
    • Date of supply is when fees are determined in 2023, hence not taxable under VAT for services completed in 2022.
Deregistration:
Natural persons not meeting mandatory registration requirements due to the new provision must deregister for VAT, considering any other taxable activities.
Important Notes:
  • Deregistration must comply with Article 21 of the Decree-Law and Article 14 of the Executive Regulation.
  • Other taxable supplies must still be considered for VAT registration threshold purposes.
Legislative References:
  • Federal Decree-Law No. 8 of 2017 on VAT and its amendments.
  • Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on VAT and its amendments.
Contact Profitrack:
For further assistance and detailed guidance, please contact Profitrack.
Disclaimer:
This article provides an overview and does not amend any legislation. For complete details, refer to the official publications and visit tax.gov.ae.
This blog post is intended to help individuals and entities understand the VAT implications for Directors’ services provided by natural persons in the UAE, following the updated regulations effective from January 1, 2023. For personalized advice, please consult with a tax professional or contact Profitrack directly.
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