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 are external directors and do not form part of the executive management team. Non-executive directors are usually selected because of their specialized knowledge and are appointed to give expert advice. Consequently, a Non-Executive Director 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.
- Non-executive directors 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 Non-executive directors.
- Where the consideration for services (taxable supplies) exceeds the mandatory registration threshold of AED375,000, the non-executive director 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 non-executive director is a non-resident 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 non-resident non-executive director to register for VAT in the UAE.
- Services provided by a non-resident are not required to meet any value threshold for VAT registration purposes. Therefore, regardless of the value of services, the non-resident non-executive director is to register for VAT in the UAE.