Times, Monday, Dec 05, 2022 | Jamadi Al Awwal 11, 1444
Amended VAT treatment for director services
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
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
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
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 firstname.lastname@example.org