New VAT exemption from January 1 in UAE

By Ghulam Haider

The UAE’s Ministry of Finance has announced value-added tax (VAT) exemption for director services undertaken by natural persons serving as members of boards at entities and institutions across the UAE from January 1, 2023.

However, the director services for legal persons serving as board members that delegate a natural person to act in the name of the legal persons as a member of the board of directors will still be subject to the VAT.

“As per the Cabinet Decision amending the Executive Regulation of the Federal Decree-Law on VAT, which will go into effect on January 1, 2023, performing the duties of a member of a board of directors at a government entity or private establishment in exchange for a reward (monetary or benefits in kind) will not be considered as a supply of services for the purposes of VAT,” said Younis Haji Al Khoori, Undersecretary of the Ministry of Finance.

He said: “Before the new legislative amendment is implemented, tasks performed by board members – natural and legal persons alike – are treated as taxable services subject to VAT, on the condition that the member provides them on a regular, continuous and independent basis, and if the total value of these taxable supplies as well as any other taxable services and import transactions exceeds the mandatory tax registration threshold.”

Where the director services provided by a member of a board span January 1, 2023 (the effective date of the Cabinet Decision), the date of supply should be considered to determine whether such services are subject to the amended provisions or not.

Al Khoori also indicated that if a board member registered for VAT no longer fulfils the requirements for mandatory or voluntary registration when the new provisions go into effect, such person may or must, as the case may be, deregister for VAT purposes.

Moreover, if a board member undertakes activities besides their duties as a member of the board of directors, and if these activities qualify as taxable supplies of goods, services, or other activities, then only their activities as a board member provided after January 1, 2023, will be excluded from the taxable supplies.

Anurag Chaturvedi, CEO and managing partner, Andersen, said the exemption is available only to a natural person, be it an Emirati or an expatriate.

“For example, a CEO acts as an executive director for the company. Such services rendered by the director shall continue to be out of scope. However, if a non-executive director is appointed to a board of directors and he/she is not involved in the day-to-day operations of the company and is given a fixed fee, such director’s fee was earlier treated as a consideration against taxable supplies made by the director. It appears that the said fees received by the natural person would now be considered as out of scope for UAE VAT purposes and such directors would now have to apply for de-registration from January 1, 2023,” he said.

He added that in case a legal person such as a company appoints a proxy (Emirati or an expatriate) on a board of directors, the respective director’s fee received by the company would not be covered under the stated exemption and would continue to be subject to VAT at five per cent.