Issue
Article 3 of the Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax ("Executive Regulation") has been amended by Cabinet decision No. 99 of 2022, which introduced a new provision.
Article 3(2) of the amended Executive Regulation states that the functions of a member of a Board of Directors (hereafter referred to as "Director"), performed by a natural person, appointed as a Director, for any Government entity or private sector establishment, shall not be considered as a supply of services.
The new provision takes effect as from 1 January 2023.
This Public Clarification provides guidance on how to apply the new provision and determine the resulting VAT obligations prior and post the date of 1 January 2023 on concerned natural persons.
Summary
With effect from 1 January 2023, the performance of a Director's function, by a natural person and for a remuneration (monetary or in kind), on a Board of Directors of any government or private sector entity, shall not be considered to be a supply of services for VAT purposes.
Prior to 1 January 2023, the general rule was that services provided by Directors, whether the function was performed by a natural person or a legal person, were considered to be services for VAT purposes.
These supplies of services were taxable where:
the Director performed the services on a regular, ongoing, and independent basis, and
the total value of taxable supplies and imports made by the Director, not limited to but also including the Director services, exceeded the mandatory registration threshold.
Detailed analysis
General
For the provision of Directors' services not to be considered as a supply of services for VAT purposes according to the amended Executive Regulation, the following conditions must be met:
Natural Person
Only Director services performed by natural persons, whether resident in the UAE or not, can be excluded from the qualification of "supply of services for UAE VAT purposes".