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24 April 2018 United Arab Emirates: VAT impact on director services The impact of VAT on services provided by directors varies depending on the two broad classifications of directors. An executive director is a member of the executive management of an organization. The executive director has an employment contract and is therefore viewed as an employee of the organization. Generally, employees who perform services for their employer are not considered to be making a taxable supply for VAT purposes. Non-executive directors (NEDs) are external directors and do not form part of the executive management team. NEDs are usually selected because of their specialized knowledge and are appointed to give expert advice. Consequently, a NED supplies services on a regular, ongoing and independent basis. The UAE VAT legislation states that a taxable supply has occurred where services have been supplied for consideration by a person conducting business in the UAE. NEDs are considered as providing a supply of services in exchange for consideration which may include a director fee, bonus payment, stock options, recharges for goods and services acquired by the NEDs. Where the consideration for services (taxable supplies) exceeds the mandatory registration threshold of AED375,000 (US$100,000), the NED is obligated to register for VAT and charge VAT on their services. Services provided will be subject to the standard rate of 5% by default. However, VAT may apply at 0% if the conditions for zero rating are met as per the Executive Regulations on Value Added Tax. Where the NED is a nonresident and the place of supply is in the UAE, VAT will be accounted for using the reverse charge mechanism by the organization receiving the services, provided the organization is registered for VAT in the UAE. Where the organization is not registered for VAT, an obligation will arise for the nonresident NED to register for VAT in the UAE. Services provided by a nonresident are not required to meet any value threshold for VAT registration purposes. Therefore, regardless of the value of services, the nonresident NED is to register for VAT in the UAE. In conducting their independent director activities, the NED may incur expenses which are subject to VAT. A NED making a taxable or out of scope supply of services should be able to recover input tax attributable to making such supplies. This can include, for example, accommodation expenses and equipment costs, and other goods and services incurred for the purpose of the business.
Document ID: 2018-5559 |
