Clarification on the VAT Treatment
Director Fees Received by a Natural Person Performing Board
The Federal Tax Authority (FTA) has amended its VAT Executive Regulations to add Article 3(2) which changes the VAT treatment of director fees received by a natural person performing Board of Director function. A Public Clarification (No. 031) was also issued by the FTA to discuss this amendment in detail.
The amendment shall be effective from 01 January 2023.
Conditions:
- Service provided by a resident or non-resident natural person
- The person is appointed as a director on a Board of any government or private entity
Transitional Rules:
Governed by date of supply rules under Article 25 and 26 of the VAT Executive Regulations
|
No |
Scenario |
Date of Supply |
|
1 |
|
Date of completion of service (i.e., 2022)
|
|
2 |
|
Date of payment
|
|
3 |
|
Date of completion of service (i.e., 2023 in the annual general meeting)
|
Deregistration
- Fees related to director function is not included in the computation of VAT registration threshold
- Reassessment should be made if VAT deregistration is required
Key Takeaways
- Natural persons performing director functions may need to assess if their services may no longer qualify as a supply of service for VAT purposes.
- A recalculation of supply turnover should also be made to determine if a VAT deregistration should be applied to the tax authority for not meeting the thresholds for voluntary/mandatory VAT registration.
