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What you need to know now
Since 1 January 2023, appointed board functions performed by a natural person are not a supply of services for UAE VAT purposes.
The original article is preserved below as a historical record. Earlier deadlines, rates, offers and approval statements should not be used as current guidance.
- The exclusion is specific to natural-person board functions.
- Other consultancy or business income needs separate review.
- Pre-2023 services require the relevant timing analysis.
Apply the change to the correct capacity
The original 2018 article predates the treatment effective from 1 January 2023 for board functions performed by a natural person. Those appointed board functions are not treated as a supply of services for VAT. The conclusion is tied to the person and capacity involved. It should not be extended automatically to all work performed by someone who happens to be a director, or to a company providing a separate service contract.
Separate board fees from other work
Review appointment letters, board resolutions and agreements describing what the individual is paid to do. Distinguish board remuneration from consultancy, management or other independent business services. Keep a schedule showing the payer, service period and payment basis for each category. A combined payment should be examined through the underlying arrangement rather than assigned one treatment merely because the recipient uses the title director. Clear documentation helps explain why different receipts may have different VAT consequences.
Review older service periods carefully
Payment date alone may not explain the treatment of a fee relating to work before the change. Keep the relevant appointment, service dates, invoices and payment evidence and apply the clarification’s timing analysis to the actual facts. Do not reverse historical VAT solely because a fee was received after 1 January 2023. If an adjustment appears necessary, assess the appropriate correction route and preserve a reconciliation from the original record to the revised conclusion.
Reassess registration without assuming cancellation
An individual who previously registered because of director fees should review any continuing business activities as well as the board remuneration. The change in treatment does not automatically cancel an existing registration number. Prepare an activity and turnover review, then assess the applicable deregistration position through the current FTA process where relevant. Keep the authority’s decision and effective date with the file, and ensure future invoicing follows the supported position instead of relying on the historical headline. Review each separate engagement rather than relying only on the payee’s job title.
YOUR NEXT STEPS
A practical way forward
- 01
Step 1
Identify who legally provides the service.
- 02
Step 2
Separate board remuneration from other contracts.
- 03
Step 3
Review registration if the income mix has changed.
CLEAR ANSWERS
Frequently asked questions
Does this exclude every service a director provides?
No. Consider the contract and capacity in which the service is supplied.
Does it automatically cancel an existing TRN?
No. Review the person’s remaining activities and deregistration position.
Read the original article First published 19 July 2018 · retained for context
This earlier article is preserved for context. Its rates, deadlines, approvals and announcements may have been superseded. Use the current guidance and official references on this page for your next step.
VAT on Directors Earnings: Company directors are required to pay 5% VAT
VAT on Directors Earnings : The earnings of the director of a company are subject to value-added tax (VAT) if he undertakes services on a regular and independent basis and if the earnings exceed the mandatory registration threshold of Dh 375,000, according to a note issued by the UAE’s Federal Tax Authority (FTA).
VAT on Director’s Earnings
Specifically, services provided by a director should be taxable if:
a) the director undertakes services on a regular, ongoing and independent basis and
b) the total value of taxable supplies made by the director, including supplies of director services, exceed the mandatory threshold.
The exception where a director’s earnings may not attract VAT is when s/he is an employee of the company or if it is provided overseas or to an overseas entity which shall be considered as zero-rated. While the services would be taxable, the director can recover input tax on the purchase of goods and services in the course of business, subject to certain conditions. And a director should not recover any VAT in respect of expenses incurred for solely non-business purposes.
VERIFY THE DETAIL
Official sources & further reading
Source checks support this general guide. Your treatment depends on the facts, tax period and applicable legislation.
