Will the Performance of the Director’s Function by a Natural Person Being a Member of the Board of Directors Be Considered a Supply of Services Under UAE VAT?

The UAE is known for the tax-friendly legislation that it has implemented with the objective of supporting businesses. The businesses are also expected to be compliant with the prevailing tax regulations to avoid any misunderstanding and consequences. The registered entities under the tax laws must be aware of certain tax regulations and the amendments that might be implemented. Coping with market competition and compliance with the tax regulations might be hectic for the businesses in the UAE, but they can approach professionals like CDA, who can provide them with assistance regarding the regulations. In this blog, we have demystified the complex amendment regarding the services provided by the directors as a natural person under VAT.

Treatment of Director’s Function Prior to Amendment

Before the amendment on 1st January 2023, the services or any functions that were performed by the directors of a board were considered as the services under the VAT regulation, irrespective of whether they were natural persons or legal persons. It would be taxable if the services were provided by the directors on a continuous basis and the value of the supplies and the imports of the directors were more than the stipulated threshold. Hence, as per such regulations, the services were considered taxable suppliers.

You may also like to read: Audit Requirements for Companies in DMCC Free Zones

All About The Amendment

After the amendment of the executive regulation on January 1, 2023, the functions performed by the directors as natural persons were not considered as the supply of services under the purview of the VAT, subject to certain conditions that were to be met by the registered entities.

The conditions included the following:

- The services must be provided by a natural person and not a legal person.

- The entity must be a director of a board, irrespective of whether it be a government entity or any private establishment.

-Only those entities are eligible for the amendment who are natural persons and are excluded from the qualification of supply of services in UAE under VAT.

- The legal persons are not considered to be under this purview regardless of whether they are in a private or public establishment, and hence the services in the UAE will be considered under VAT.

Board of Directors

The board of directors of any private or public entity that are natural persons are excluded from the qualification. On the other hand, if the directors are engaged in rendering any other services, they will be considered taxable supplies of services under the VAT.

The services provided by the director will be excluded only if such services are rendered in a formal capacity as a director, or else such services will be included as the taxable under VAT services in UAE.

Even if the services are provided by the directors who are not residents of the UAE, they will still be excluded from the qualification, and along with that, the reverse change mechanism would not be applied, providing the consideration that they are not required to be registered under the VAT.

It must also be kept in mind that if the director renders any other activities or services that are considered to be qualified as supply of goods or services under VAT, then the services provided as a director and in relation to the function of director will only be considered as excluded from the qualification.

It is mandatory for the business entities to be aware of the tax regulations to understand the compliance framework and to be sure that the regulations are followed. The board of directors must be aware of the amendments brought so that they can avail themselves of the exclusion if required. The business entities must try to implement a stringent tax framework so that the tax returns can be filed on time and further penalties can be avoided.

What Can CDA Do For You?

CDA has moulded a strategic tax team comprising of well-experienced tax professionals who are equipped with the knowledge of versatile tax regulations of the land, including the VAT and UAE corporate tax regulations. Our team can serve you with a streamlined set of tax services that can enable you to ensure effective tax compliance and acquire competitive tax advantages that can assist you in growing. Our team is always with you to serve your varied needs and provide assistance whenever required

To explore more about our tax team, connect with us now!